Vanzant also signed two other Truth in Lending Act Disclosure Statements in connection
with her January 2001 loan. The first statement indicated Vanzant signed the statement on
January 9, 2001. Pl.’s App., Pl.’s Ex. F. The second statement indicated Vanzant signed the
statement on January 12, 2001. Pl.’s App., Pl.’s Ex. E.

Two days after the closing, Sullivan came to Vanzant’s house and asked her for all of the
documents she had received at the closing, including the Notice of Right to Cancel.

Def.’s 56.1] 14. Vanzant gave him the requested documents. Def.’s 56.1 14. Plaintiff did not
attempt to exercise her right to rescind the January 2001 loan. Def.’s 56.1 915. Thereafter,
Hartford assigned this mortgage and promissory note to EquiCredit. Def.’s 56.1 418.

Sullivan then proposed that Vanzant obtain another loan so that she could finance

additional improvements. Def.’s 56.1 21. In March 2001, Sullivan called Vanzant and told her
someone would pick her up and take her to complete the paperwork for the loan. Pl.’s 56.1 22.
The same man who drove Vanzant earlier, for the January 2001 loan, once again drove Vanzant
to complete the loan. Pl.’s 56.1 22. Vanzant signed documents that created a second mortgage
transaction between Vanzant and Hartford. Def.’s 56.1 23. Vanzant was unaware this was
called the closing, and she did not understand the significance of the mortgage transaction.
Pl.’s 56.1] 22. Vanzant also signed two Truth in Lending Act Disclosure Statements in
connection with her March 2001 loan. The first statement indicated Vanzant signed the
statement on March 15, 2001. PI.’s App., Pl.’s Ex. I. The second statement indicated Vanzant
signed the statement on March 27, 2001. Pl.’s App., Pl.’s Ex. J.

Hartford never represented that Sullivan and New Look were its agents. Def.’s 56.1 929.

Sullivan never represented to Vanzant that he worked for anyone other than New Look.



However, the Illinois Supreme Court stated that:

As we noted in Lanier, there is a consistent policy through Illinois law against

extending disclosure requirements beyond what is mandated by federal law. If an

assignee were liable under the Consumer Fraud Act, though exempt from the

liability under [the Truth in Lending Act], it would impose disclosure

requirements on assignees beyond those mandated by federal law. ... Thus, we

conclude that an assignee is not responsible for the misrepresentations made by

the dealer to the consumer outside of reviewing the face of the assigned document

for apparent defects.

Jackson, 755 N.E.2d at 469 (internal citations omitted).

The Illinois Supreme Court, though, recognized that a plaintiff could bring a state law
claim for preassignment fraud that was “active and direct.” Jackson, 755 N.E.2d at 470. This
type of fraud would be separate from the Truth-in Lending Act assignee exemption. Jackson,
755 N.E.2d at 470. “For example, if a plaintiff could allege specific facts showing that the
assignee met with the car dealer and concocted a scheme to put false statements on the financing
statement, an assignee would not be exempt from a state fraud action from a duped buyer.”
Jackson, 755 N.E.2d at 470-71.

Here, Vanzant claims EquiCredit and Fairbanks chose to accept the assignment of her
loans although EquiCredit and Fairbanks should have recognized the loans were fraudulently
obtained. According to Vanzant, EquiCredit has policies and procedures to review loan files
before accepting an assignment of a loan; but EquiCredit excused certain requirements, knew
Hartford violated industry standards, and ignored critical documents, other than the Truth in
Lending Act disclosures, in the loan files. However, it is undisputed that neither EquiCredit nor

Fairbanks ever engaged in any communication with Vanzant in order to induce her to enter into

either loan. Moreover, upon the assignment of a loan, EquiCredit and Fairbanks have no duty



The lender may also be subject to actual and statutory damages for failure to provide the
Notice of Right to Cancel. 15 U.S.C. § 1640(a). However, an assignee of a loan is not subject to
actual and statutory damages unless the required disclosure statements are invalid on their face.

EquiCredit and Fairbanks first contend that they are not liable under the Truth in Lending
Act because Vanzant voluntarily surrendered her Notice of Right to Cancel to Sullivan.
However, Sullivan asked Vanzant to return her Notice of Right to Cancel, and Vanzant gave
Sullivan the document. Although a lender which obtains a Notice of Right to Cancel after the
rescission period ends does not violate the Truth in Lending Act, Jn re Rhoades, 80 B.R. 938,
943 (Bankr. C.D. Ill. 1987), a lender which asks for and obtains the Notice of Right to Cancel
from a borrower before the rescission period ended would violate the purpose of
§ 1635 and prevent the borrower from having a reasonable opportunity to rescind the loan. It is a
genuine issue of material fact as to whether Sullivan asked and obtained Vanzant’s Notice of
Right to Cancel after the rescission period ended. Accordingly, EquiCredit and Fairbanks’
motion for summary judgment on this ground is denied.

EquiCredit and Fairbanks further contend that they cannot be held liable for Sullivan’s
actions because he did not act as their agent. While it is undisputed that Hartford never
specifically represented that Sullivan and New Look were its agents and Sullivan never
specifically said to Vanzant that he worked for anyone other than New Look, it may have
appeared to Vanzant that Sullivan or New Look was Hartford’s agent. See Chemtool, Inc. v.
Lubrication Techs., Inc., 148 F.3d 742, 745 (7th Cir. 1998) (stating test for apparent agency).

Sullivan and New Look proposed that Vanzant remodel her home; Sullivan stated that he could



Def.’s 56.1 § 30. Moreover, no misrepresentations are apparent on the face of either of
Vanzant’s promissory notes and mortgages, which were later assigned to EquiCredit. Def.’s 56.1
{{ 19, 26. Neither EquiCredit nor Fairbanks ever engaged in any communications with Vanzant
in order to induce her to enter into either of the loans, Def.’s 56.1 § 27.
Thereafter, Hartford assigned the second mortgage and promissory note to EquiCredit.
Def.’s 56.1 4 25. Fairbanks later became the servicer of this second loan. Def.’s 56.1 97.
ANALYSIS
Count IT

Vanzant seeks rescission in Count III based upon the alleged unlawful taking of her
Notice of Right to Cancel disclosure. EquiCredit and Fairbanks contend that they are not liable
under the Truth in Lending Act because Vanzant voluntarily surrendered her loan documents to
Sullivan, and Sullivan did not act as EquiCredit’s and Fairbanks’ agent.

The Truth in Lending Act provides that the originating lender must clearly and
conspicuously provide to the borrower in writing notice that there is a right to rescind the lending
transaction within either (1) three days of the closing of the transaction or (2) the delivery of the
information and rescission forms, whichever is later. 15 U.S.C. § 1635(a); 12 C.F.R.

§ 226.23(a)(3). This writing is otherwise known as the Notice of Right to Cancel. If a lender
fails to provide this disclosure, the right to rescind extends for three years after the transaction
occurs. 15 U.S.C. § 1635(f); 12 C.F.R. § 226.23(a)(3); Fairbanks Capital Corp. v. Jenkins, 225
F. Supp. 2d 910, 913 (N.D. Ill. 2002). The right to rescission also applies to an assignee of a

loan. 15 U.S.C. § 1641(c).



Vanzant initially argues, in paragraphs 15 and 25 of her statement of facts, that she
simultaneously signed and received two contradictory Truth in Lending Act disclosures at each
loan closing. The simultaneous receipt of two contradictory disclosure statements is a violation
of the Truth in Lending Act. Pulphus v. Sullivan, No. 02 C 5794, 2003 U.S. Dist. LEXIS 7080,
at *37-39 (N.D. Ill. Apr. 28, 2003). Vanzant asserts that at the first closing, she received
multiple, contradictory disclosure statements. These disclosure statements show that they were
signed on different dates. Vanzant further contends that either her signature or the dates were
forged on these disclosure statements. Vanzant also argues the same practice occurred with the
disclosure statements she received at the second closing.

However, EquiCredit and Fairbanks would not be able to discover from the face of the
disclosure statements if Vanzant’s signature or the date were forged on the disclosure statements.
Furthermore, it is undisputed that no misrepresentations are apparent from the face of Vanzant’s
promissory notes and mortgages which were assigned to EquiCredit and later serviced by
Fairbanks. Therefore, no genuine issue of material fact exists as to whether EquiCredit and
Fairbanks fulfilled their duties under the Truth in Lending Act.

Vanzant next contends that “the evidence adduced by [Vanzant] clearly supports an
inference that EquiCredit participated, accepted, and approved the misconduct.” PI.’s Resp. at 7.
She argues the fraud claims are not based on a Truth in Lending Act disclosure, and the assignee
protection provision thus does not apply. Instead, Vanzant states EquiCredit knowingly accepted
the fruits of the fraud and willfully ignored information that would have demonstrated Vanzant’s

loans were fraudulently procured.



Minute Order Form (06/97)

‘ United States District Court, Northern District of Illinois
Name of Assigned Judge John W. Darrah Sitting Judge if Other
or Magistrate Judge . than Assigned Judge
CASE NUMBER 02 C 5794 DATE 7/14/2004
CASE Pulphus vs. Sullivan, et. al.
TITLE
{ln the following box (a) indicate the party filing the motion, e.g, plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

MOTION: of the motion being presented.]

DOCKET ENTRY:

(65) Oo Filed motion of [ use listing in “Motion” box above.]

(2) oO Brief in support of motion due _

(3) o Answer brief to motion due. . Reply to answer brief due. :

(4) im Ruling/Hearing on set for at

(5) oO Status hearing[held/continued to] (set for/re-set for] on set for at

© Oo Pretrial conference[held/continued to] [set for/re-set for] on set for at .

(¢) a Trial[set for/re-set for} on at

(8) Qo [Bench/Jury trial] [Hearing] held/continued to at

(9) i) This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

QFRCP4(m) CO Local Rule 41.1 OFRCP41(a)(1) OO FRCP41{a)(2).

(0) =o (Other docket entry] For the reasons stated in the attached memorandum opinion and order,
Equicredit and Fairbanks’ motion for summary judgment is denied as to Count IIT; and Equicredit and
Fairbanks’ motion for summary judgment is granted as to Count V. Enter Memorandum Opinion and
Order.

dl) @f [For further detail see order attached to the original minute order.]

No notices required, advised in open court.
No notices required umber ot notices
Notices mailed by judge’s staff. r ©
Notified counsel by telephone. SUL 15 2004
Y | Docketing to mail notices

Mail AO 450 form. : MNOS LOMLSta “s'n
Copy to judge/magistrate judge. sAEPTO

sounroom OY a1 Tne A002

MF deputy’s “nt
tial: +
= DatditilePeceived in
central Clerk’s Office inating deputy initials



CONCLUSION
For the foregoing reasons, EquiCredit and Fairbanks’ Motion for Summary Judgment is
denied as to Count III; and EquiCredit and Fairbanks’ Motion for Summary Judgment is granted

as to Count V.

se 4 Mok

(DAN. DARRAH
rites States District Judge

11



under the law regarding these requirements, industry standards, and critical documents. Holding
EquiCredit and Fairbanks liable for fraud in this situation would “impose disclosure
requirements on assignees beyond those mandated by federal law.” Jackson, 755 N.E.2d at 469,

Vanzant further contends that EquiCredit and Fairbanks participated in the fraud.
Vanzant asserts that there was a close relationship between EquiCredit and Hartford because of
the high volume of dealings completed between these two parties. However, Vanzant has not
produced any affidavits, depositions, answers to interrogatories, and admissions on file to
demonstrate that EquiCredit and Hartford “concocted a scheme” to defraud Vanzant. Vanzant
has also failed to produce any affidavits, depositions, answers to interrogatories, and admissions
on file to demonstrate that Fairbanks was involved in a scheme to defraud Vanzant. Therefore,
no genuine issue of material fact exists as to whether EquiCredit and Fairbanks actively and
directly participated in a preassignment fraud of Vanzant.

Lastly, Vanzant argues that EquiCredit is not a holder in due course of the loans and is,
thus, liable for all borrower claims against the originating lender. However, the holder in due
course rule operates only as a limitation upon a creditor’s “right to enforce the obligation of a
party to pay an instrument.” 810 ILCS 5/3-305(a). Thus, while the holder in due course rule
may affect EquiCredit’s ability to enforce Vanzant’s obligation, it does not create a basis for her

to sue for damages.

10



arrange financing for the remodeling; and Sullivan called Vanzant and had someone pick her up
to complete the paperwork for the loan.

Under these facts, it could have reasonably appeared to Vanzant that Sullivan or New
Look worked on behalf of Hartford, the original lender of the loan. If Sullivan or New Look are
found to be agents of Hartford, the right to rescission could still apply against assignees of the
loan. Therefore, a genuine issue of material fact exists as to whether Sullivan or New Look were
agents of Hartford; and EquiCredit and Fairbanks’ motion for summary judgment on this ground
is denied.

Count V

In response to Vanzant’s claim for common law fraud against EquiCredit and Fairbanks,
EquiCredit and Fairbanks argue that they complied with the assignee provisions of the Truth in
Lending Act and are therefore shielded from liability. An assignee cannot be liable for Illinois
state law claims premised on alleged Truth in Lending Act violations unless: (1) an assignee
violates the assignee liability provisions of the Truth in Lending Act or (2) the assignee
participated in “active and direct” fraud before the assignment of the contract. Jackson v. S.
Holland Dodge, Inc., 755 N.E.2d 462, 469-71 (Ill. 2001) (Jackson); accord Marshall v. Webb,
No. 01 C 3619, 2002 WL 1628448, at *1 (N.D. Ill. Mar. 11, 2002). An assignee is liable under
the Truth in Lending Act only if a violation is apparent on the face of the disclosure statement.
15 U.S.C. § 1641(a). “A violation apparent on the face of the disclosure statement includes but
is not limited to (1) a disclosure which can be determined to be incomplete or inaccurate from the
face of the disclosure statement or other documents assigned, or (2) a disclosure statement which

does not use the terms required to be used by this subchapter.” 15 U.S.C. § 1641(a).



to the opposing party. Anderson, 477 U.S. at 247-48; Popovits v. Circuit City Stores, Inc., 185

F.3d 726, 731 (7th Cir. 1999). However, a metaphysical doubt will not suffice. Matsushita, 475

USS. at 586. Ifthe evidence is merely colorable or is not significantly probative or is no more

than a scintilla, summary judgment may be granted. Anderson, 477 U.S. at 249-250.
BACKGROUND

The undisputed facts, for the purposes of this motion, taken from the parties’ Local Rule
56.1(a) & (b) statements of material facts (referred to herein as “Pl.’s 56.1" and “Def’s 56.1") and
exhibits, are as follows.

Vanzant owns and lives at a home on the west side of Chicago. Def.’s 56.1 § 1.

John Sullivan and New Look Home Services, Inc. (“New Look”) proposed to remodel Vanzant’s
home. Def.’s 56.1 4 10. Sullivan stated that he could arrange financing for the remodeling and
further stated that a person in New Look’s finance department would handle the financing. Pl.’s
56.196.

In January 2001, Sullivan called Vanzant and told her someone would pick her up and
take her to complete the paperwork for the loan. PI.’s 56.1 4/7. A man who worked for either
New Look or Sullivan drove Vanzant to complete the loan. Pl.’s 56.17. Vanzant signed
documents that created a mortgage transaction between Vanzant and Hartford Financial Services,
Inc. (“Hartford”). Def.’s 56.1 12. One of the documents Vanzant signed and received was the
three-day Notice of Right to Cancel required by the Truth in Lending Act, pursuant to 15 U.S.C.
§ 1635. Def.’s 56.1 | 13. Vanzant was unaware this was called the closing, and she did not

understand the significance of the mortgage transaction. Pl.’s 56.1 97.



alleges, in Count V, that EquiCredit and Fairbanks engaged in common -law fraud by knowing,
through its possession of loan documents, that Vanzant was fraudulently induced into two loan
transactions. For the following reasons, EquiCredit and Fairbanks’ motion for summary
judgment is granted with respect to Count V, but EquiCredit and Fairbanks’ motion is denied
with respect to Count II.
LEGAL STANDARD

Summary judgment is appropriate when no genuine issue of material fact exists and the
moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Cincinnati
Ins. Co. v. Flanders Elec. Motor Serv., Inc., 40 F.3d 146, 150 (7th Cir. 1994). “One of the
principal purposes of the summary judgment rule is to isolate and dispose of factually
unsupported claims or defenses ... .” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Thus,
although the moving party on a motion for summary judgment is responsible for demonstrating
to the court why there is no genuine issue of material fact, the non-moving party must go beyond
the face of the pleadings, affidavits, depositions, answers to interrogatories, and admissions on
file to demonstrate, through specific evidence, that a genuine issue of material fact exists and to
show that a rational jury could return a verdict in the non-moving party’s favor. Celotex, 477
USS. at 322-27; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254-56 (1986); Matsushita Elec.
Indus. Co. y. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986); Waldridge v. American Hoechst
Corp., 24 F.3d 918, 923 (7th Cir. 1994).

Disputed facts are material when they might affect the outcome of the suit. First Ind.
Bank y. Baker, 957 F.2d 506, 507-08 (7th Cir. 1992). When reviewing a motion for summary

judgment, a court must view all inferences to be drawn from the facts in the light most favorable



UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

MATILDA PULPHUS, BARBARA VANZANT,
SYLVIA MANDERSON, and
STEPHANIE BARNAS,

Plaintiffs,

v. No: 02 C 5794
JOHN J. SULLIVAN; NEW LOOK HOME
SERVICES, INC.; ERIC GOLD;

MDR MORTGAGE CORPORATION;
ESTHER ALFARO-GILER; HERITAGE
TITLE COMPANY; HARTFORD FINANCIAL
SERVICES, INC.; CITIZENS BANK;

BANK ONE; PROVIDENT BANK;
EQUICREDIT CORPORATION OF
AMERICA; and FAIRBANKS CAPITAL
CORPORATION,

Judge John W. Darrah

pee
JUL 15 2004

a)

we SSS Se Se SS SS Serer

Defendants.

MEMORANDUM OPINION AND ORDER Aj

x
RAM Giear ces: ond:
Several Plaintiffs, including Barbara Vanzant, filed suit against several Defendants,

including EquiCredit Corporation of America (“EquiCredit”) and Fairbanks Capital Corporation
(“Fairbanks”). Vanzant alleges that she was unlawfully solicited to sign high-interest mortgages
to finance poorly constructed home improvements. EquiCredit and Fairbanks move for summary
judgment as to Counts III and V.

Vanzant alleges, in Count III, that EquiCredit and Fairbanks failed to comply with the
Truth in Lending Act , 15 U.S.C. § 1601, et seg., by taking Vanzant’s Truth in Lending Act

Notice of Right to Cancel disclosure before her three-day rescission period ended. Vanzant

109