The second basic argument of defendants is that they complicd with the disclosure
requitement of the Truth in Lending Act and when this is done, it precludes the state law claim
alleged here. There are cases where this is a good argument, but the complaint alleges non-
compliance with TILA because (and I assume here that this is true) the written disclosures were
incomplete at the time of the loan closing and were not provided until afler the loan had closed.
This may or may not be bad cnough, but when combined with allegations of misrepresentations
in soliciting the loan and at the time of closing the loan, the existence of TILA compliant papers
signed by those who accepted the loans is not enough to destroy the case at the pleading stage.”

As to the summary judgment aspect of the motion to dismiss, I decline to dismiss, and I
decline to convert the motion into a Rule 56 motion. I doubt that defendants would prevail, but
even if they would, it would divert the case from what I regard as an appropriate course for the
case-that is document discovery, depositions and routine discovery. I recognize that in some
casos, a party is entitled to prompt disposition on summary judgment, but this is not onc of those
cases. Fnough has been alleged to allow Count Two to go forward. I recognize that defendants

would, in any cvent, have to defend their conduct on Count One, but there are valid policy

She also says that the Attorney General is not to be bound in a case where it is secking to enforce
law and not act on behalf of an individual plaintilf. Personally I would not have thought that a
defendant is generally entitled to fewer procedural protections when sucd by the State than when
it is sued by a private individual. Moreover, it is not entirely consistent with the staturc of the
chief legal officer of Illinois to seek excuses of this sort for its pleading failures, especially in a
case where, on the whole, it has not failed in its pleading.

? The arguments offered by defendants to defeat the complaint on dismissal and summary
judgment are redolent of the kinds of arguments that have been made for ycars under the unusual
“innocent construction” libel doctrine memorialized in John v. Tribune Co., 24 Ill.2d 437
(1962), It is not a particularly attractive legal doctrine if transplanted from its First Amendment
media protection context to another that might be denoted as a mortgage broker protection
context.



$105,300, which would have lower payments than the current Joan. At the closing, Ms. Gibbons
did not see a monthly payment sct forth in the papers, and she believed it was a 15-year fixed-rate
loan, fully amortizing, with payments that would take care of taxes and insurance. In fact, the
payments werc higher, taxes and insurances were not included and the loans were balloon loans.

The reason J put quotation marks around the word “dismiss” is because the motion says
that one cannot make the state law claim where the Federal Truth in Lending Act disclosures are
made and “the factual allegations of Count II... . are directly contradicted by the deposition
testimony of the four customers and the documents that they signed and acknowledged.” This
seems to invoke summary judgment rather than dismissal.

The defendants think that the allegations fail for particularity under Rule 9(b). There
might be some force to this claim with respect to a detail or two, but as a whole it is quite wrong.
Exact dates and places are alleged with respect to all four cases, And, at the minimum, there are
allegations of the actual contents of the mistepresentations ot omissions and to whom they were
madc or omitted. Of course, one can always make an “angels dancing on the head of a pin” sort
of argumeni against any allegation, but the allegations here arc far morc detailed than those found
in the reported cases that threw out fraud claims on 9(b) grounds, In the context of these
allegations, failing to tell someone that the loan is a balloon loan, its payments will not cover
taxcs and insurance, and that there is a prepayment penalty may constitute fraud. T regard ihe
defendants’ argument as tongue-in-cheek, and [ would rebuke them for it but for the fact that the

Attomey General has made iwo tongue-in-cheek arguments of her own, both of which I reject.!

' The Attorney General says that pleading under the state law does not require compliance
with Rule 9(a), but that is plainly wrong on the merits. Tf the state law requires a lesser standard,
then the Attorney General can file in state court and gain the benefit of those procedural rules.

3


reasons lo permit this case to go through at lcast some discovery before summary judgment is
addressed on the state law claim.

ENTER:

James B. Zagel C )o
United States Distri ge

DATE: { Ayes dw



Onder orm (uo?)

United States District Court, Northern District of Llinois

Name of Assigned Judge p Sitting Judge if Other
or Magistrate Judge James B. Zagel than Assigned Suge
CASE NUMBER 02 C5078 DATE 4/16/2003
CASE FEDERAL TRADE COMMISSION vs. OST FINANCIAL SERVICES, INC, ET AL
TITLE
[Li the following box (a) indicate the party filing the motion, ¢.g.. plaintil?, detindsm, 3rd party planntifl, and (b) state brietly the nature

of the motion being presented. |

MOTION:

DOCKET ENTRY:

i) Oo Filed mation of [ use listing in “Motion” box ahove.]

(2) a Brief in support of motion duc

(3) o Answer brief to motion due___-_ Reply to answer brie! duc

(4) oO Ruling/Hearing on___eset fora _

(5) a Status hearing[held/continued to] [sct for/re-set for] on _ set for at _
(6) o Pretriat conference|held‘continued to] [set for/re-set for] on __ set for _ at

(7) im ‘Trial[sct for/re-set forlon at

(8) oO (Bench/Jury trial] [Hearing] held/continucdto at

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

OFRGP4(m) [J Local Rule 41.1 ChFRCP41(a)(1) OD FROPS1(a)(2),

ao «ol [Other docketenuy} Motion (17-2) for judgment is denied, Motion (26-1) to dismiss is denied.

a1) of [For further detail sec order attached to the original minute order. |

Document
Number

ay

No notices required. adivised in open court.

No notices required umber

PR 12

Notices mailed by juige's staft.

7003

Te fay iia

>

Notified counsel by telephone

| Packeting to mail notices

Mail AC) 450 form.

Copy to judge/magistrate judze.

epurlroom ry Va Yd r
pw Ueputy's

Dule/time received in
central Clerk's Office



UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS DOCKETED
EASTERN DIVISION APR 17 2001

FEDERAL TRADE COMMISSION and
STATE OF ILLINOIS, ex rel. Attorney
General LISA MADIGAN,

Plaintiffs, No. 02 C 5078
Judge James B. Zagel
v.

OST FINANCIAL SERVICES, INC., an
Illinois corporation, and MARK.
DIAMOND, individually and as an officer
of OSI Financial Services, Lne.,

Defendants.

MEMORANDUM OPINION AND ORDER

The FTC and Minois have sued OSI Financial Services and Mark Diamond over
allegedly illegal loan practices. One count is under the FTC Act and the other under the Illinois
Consumer Fraud and Deceptive Business Practice Act. Defendants move to “dismiss” the state
law count. Count Two alleges acts with respect to four persons. | reiterate bricfly.

A. In junc 1999, a man who said he was Mark Diamond solicited Ivette Cruz to take out
a home equity loan which he could get -- a 30-year fixed rate whose monthly payments would
include payments for taxes and insurance. He gave her papers to sign which she did. The papers
had unfilled blanks. She did not see anything telling her the size of the payments or any other
details, i.e., term of Joan, whether it was a balloon, what was the APR, what Diamond and/or the
home improvement company would get. Nor did he tell her it was not the kind of loan he
initially described to her. He did not give her a copy of the papers until wecks after the closing.

The payments did not include sums for taxes and insurance.

2s



B. In December of 1998, Diamond solicited Virgie Brown to take a 15-year fixed-rate
loan for low fees and, he said, he could refinance it at a lower rate within a year for no additional
fees and the payments included taxes and insurance. The closing for her was like the closing for
Ivette Cruz. In fact, the loan was a 15-year balloon, a $90,000 loan and $9,000 went to the
mortgage broker and there was a prepayment penalty of $2,700 for any refinancing within three
years, The payments did not include money for taxes and insurance.

C. In 1999, a home improvement company referred Lela Gill to Mark Diamond, who
solicited her to take a loan which would pay for the improvements and also pay olf her
outstanding bills. At closing he told her and her husband it was a 30-year fixed rate. It was, in
fact a 15 year balloon loan. Moreover, after deduction of broket’s fees, the proceeds were
insufficient to pay for the home improvements. So he offcred to refinance for a larger amount,
which was donc on September 26". He said it was a 30-year fixed and, if timely paid, a new loan
with lower payments could be made. He did not tell them there was a prepayment penalty. Nor
did he tell them it was a 15-year balloon. He did not give them copies of the papers until well
after the closing.

D. In March 1999, Levester Gibbons called Mark Diamond, who offered him a 15-year
loan that would be paid off at the end of the loan term. When Ms. Gibbons noticed the word
“balloon” in the papers ai the closing, Diamond stated it meant the loan payments decreased after
the first few payments. The closing was on May 18, but the papers were dated May 13, and
Diamond explained this by saying he was behind in his work and nceded to catch up. The loan
was for $70,000. A few months latcr, another person at OSI called with an offer to refinance

with lower payments, Diamond came to Ms. Gibbons’ home and suggested a larger loan of