15 U.S.C. § 1641(a) (1998). Because Latham’s TILA claim is not dependent on a violation
“apparent on the face of the disclosure statement,” the only remedy available against Provident, as
an assignee, is that of rescission, which is specifically provided for in section 1641(c) and which
remains regardless of any limitation found in section 1641(a). See Payton v. New Century Mortgage
Corp., 2003 WL 22349118, at *6-7 (N.D. Ill. Oct. 14, 2003) (discussing assignee liability for
statutory damages and also noting that section 1640 specifically refers to creditor (not assignee)
liability for statutory damages unless otherwise provided for).'' In so finding, we are in accord with
the decisions of Walker y. Gateway Fin. Corp., 286 F. Supp. 2d 965, 968-69 (N.D, Ill. 2003) and
Brodo y. Bankers Trust Co., 847 F. Supp. 353, 358-59 (E.D. Pa. 1994). Faced with the same issue,
those courts reasoned that imposing damages on an assignee “would create an impermissible end run
around the obvious congressional purposes that underlies the [section 1641(a) enactment of a
statutory equivalent to a bona fide purchaser rule.” Walker, 286 F. Supp. at 696; Brodo, 847 F.
Supp. at 359,

We are not persuaded, however, by Provident’s argument that the class claim should be
dismissed in its entirety because Latham is attempting to hold it liable to a class of unrelated
borrowers. It refers us to Latham’s class as set forth in his complaint, which is:

“{a) all natural persons (b) who obtained loans from RLCA secured by their

residences, (c) that were closed by [Lakeshore], (d) on or after a date three years prior

to the filing of this action, (e) for purposes other than the initial construction or

acquisition of those residences, (f) where a document in the form represented by
Exhibit F (g) was signed at the closing.”

'' Because we find that Provident cannot be liable for statutory damages, we need not address its
argument that Latham’s claim for those damages is untimely.

-13-


2003. He notified Litton by letter dated and August 27, 2003. (/d. Exs. H, 1.) On August 26, 2003,
RLCA, through its agent, sent a letter to Latham’s attomey, stating that the Loan proceeds check was
sent to Latham by overnight courier on March 5, 2001, and that Latham’s demand for rescission was
rejected. (id. Ex. J, 31.) Latham has been instructed to send payments to Litton. (/d. 32.)
Latham has asserted a class claim against RLCA and Provident for violations of TILA
(‘Count I’), an individual claim against RLCA and Provident for violations of TILA (“Count IP’)
and a class claim against RLCA, Lakeshore and other defendants for violations of the Consumer

Fraud Act (“Count II”).

The Legal Standard
On a Rule 12(b)(6) motion to dismiss, the Court accepts as true all well-pleaded factual
allegations of the complaint, drawing all reasonable inferences in plaintiff’s favor. Forseth v, Village
of Sussex, 199 F.3d 363, 368 (7th Cir. 2000). No claim will be dismissed unless “it is clear that no
relief could be granted under any set of facts that could be proved consistent with the allegations.”

Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).

Discussion
I, Claims Against RLCA
A. Class Action TILA Claim
RLCA seeks to dismiss Count I on the basis that a TILA claim seeking rescission under
section 1635 is not amenable to class action status. Specifically, RLCA asserts that “the need to

inquire into factually-based allegations for each borrower makes a class action judicially,

-4-


Lakeshore focuses too much on Latham’s failure to allege coercion on Lakeshore’s part during the
Loan transaction. Latham is not required to plead coercion. In addition, Lakeshore’s argument
relating to Latham’s reliance on any misrepresentations that it may have made is misplaced. See
Cozzi Iron & Metal, Inc. v. U.S. Office Equip., Inc., 250 F.3d 570, 576 (7th Cir. 2001) (reliance not
required to establish claim under Consumer Fraud Act).

Lakeshore also argues that Latham has not properly pled that Lakeshore’s actions caused any
injury. Latham’s argument, however, is that Lakeshore’s and RLCA’s action “interfered with” his
right to cancel. It is reasonable to assume his injury is being obligated under a mortgage that he

wishes to rescind. (Compl. ff 29, 30, 31.)

-17-



willingness to place home at risk and rescind if they wish for any reason). Given the eye with which
we view a complaint in deciding a motion to dismiss under Rule 12(b)(6), we find that Latham has
stated a claim under TILA for failure to provide clear and conspicuous notice of his right to rescind.
See Smith v. Cash Store Mgmt., Inc., 195 F.3d 325, 332 (7th Cir. 1999) (“[W]hen a lender informs
a borrower of his right to rescind, but also contradicts this notice by telling the borrower that he had
waived his right to rescind, the borrower may state a claim under [TILA].”) (Manion, J., concurring

in part and dissenting in part).

B. Class Action Consumer Fraud Act Claim

RLCA seeks to dismiss Count II on numerous grounds: (1) that a claim under the Consumer
Fraud Act is not amenable to class action status; (2) that the complaint does not satisfy Rule 9(b);
and (3) that it cannot be held liable for the actions of Lakeshore.

As to its first argument, RLCA repeats the argument it made with respect to the TILA class
claim: that the fact-based inquiry necessary to determine whether, in each borrower’s case, the
Consumer Fraud Act was violated precludes class treatment. Latham responds by reasserting his
TILA class claim position. As stated above, we do not determine at this stage of the litigation that
Latham cannot maintain a Consumer Fraud Act class claim. His allegation is that the simultaneous
presentation of both the Notice of Right to Cancel and Election to Not Cancel at the closing is
deceptive. His complaint as drafted does not require an individualized examination of words and

acts that took place at each closing to sustain his claim. We decline to dismiss his class action claim



Other courts have found that rescission claims under TILA could be maintained as class
claims. In Hickey v. Great W. Mortgage Corp., 158 F.R.D. 603 (N.D. Ill. 1994), Judge Conlon
granted a motion to certify a class seeking damages and a declaration that the class had a right to
rescind its transactions under TILA. /d. at 613-14. She gave little weight to the James court’s
argument that allowing a class action for rescission would conflict with the twenty-day cure period
provided for in the statute. Jd. at 613 n.5 (noting that some authority suggests that a written
complaint can serve as notice to a creditor that a borrower seeks rescission). In Williams, the court
found “nothing in the language of TILA which precludes the use of the class action mechanism
provided by Rule 23 to obtain a judicial declaration whether an infirmity in the documents, common
to all members of the class, entitles each member of the class individually to seek rescission.”
Williams, 183 F.R.D. at 436. It found significant the fact that plaintiff was not seeking to rescind
each contract as aremedy. If the court found in plaintiff’s favor on the TILA claim, then each class
member, as an individual, would have the option to seek rescission and defendant would have the
opportunity to exercise its rights to cure under TILA. Jd. at 435.

The district court of Massachusetts rejected the reasoning of the James and Jefferson courts
when it decided that class action status was available under TILA to seek a declaration of the right
of rescission. See McIntosh v. Irwin Bank & Trust Co., 215 F.R.D. 26, 33 (D. Mass. 2003), It was
unpersuaded by the Jefferson court’s rationale that class actions under TILA seeking rescission were
“inappropriate because it would render section 1635 penal in nature.” Jd. at 33. The court said that

to achieve its remedial purpose, TILA was penal in nature. It cited with approval the Williams

to the status quo ante. James, 621 F.2d at 730. The Jefferson also addressed these arguments. See Jefferson,
161 F.R.D. at 69.

-6-


procedurally, and financially improper.” (RLCA Mot. to Dismiss at 5.) It argues that Latham cannot
possibly satisfy the class action status requirements of Rule 23 because common issues of law and
fact cannot predominate and therefore a class claim would be unmanageable. (/d. at 6.) Latham
responds by saying that, because an objective standard determines whether the presentation of two
conflicting documents (the Notice of Right to Cancel and the Election to Not Cancel) violates TILA,
a class claim under 15 U.S.C. § 1635(b) is entirely appropriate. (Pl.’s Consol. Resp. at 7.)

Courts are divided on whether TILA claims for rescission are appropriate for class action
treatment. See Williams v. Empire Funding Corp., 183 F.R.D. 428, 435 n.10 (E.D. Pa. 1998) (listing
cases in which courts have both denied and granted class action status for rescission remedy under
TILA). In Jefferson v. Security Pac. Fin. Servs., Inc., 161 F.R.D. 63 (N.D. Ill. 1995), Judge Castillo
denied a motion for class certification because he found that “rescission is a purely personal remedy
for technical violations of TILA.” Jd. at 68. Particularly relevant to his conclusion was the language
in section 1635S(b) itself, which gives a creditor twenty days to act on a borrower’s request for
rescission before the claim can be filed in court. He said: “This requirement cuts strongly in favor
of treating rescission as a personal, rather than a class, remedy. Under Section 1635, individuals
must choose to assert the right to rescind, on an individual basis and within individual time frames,
before filing suit.” Jd. at 69. In concluding as he did, Judge Castillo relied in part on the decision
in James v. Home Constr. Co., 621 F.2d 727 (Sth Cir. 1980), in which the court found the twenty-day
cure period persuasive evidence that rescission is a personal remedy and that a rescission class

cannot be certified.° See James, 621 F.2d at 731.

6 The James courtalso relied on other arguments, such as: (1) the potential for conflictamong parties
seeking rescission from a credit institution of limited solvency; (2) the availability of attorney’s fees in
successful individual actions; and (3) the fact that the purpose of a rescission remedy is to restore the parties

-5-


Conclusion

For the reasons stated above, defendants’ motions are granted in part and denied in part.
RLCA’s motion to dismiss Counts I and III is denied. Lakeshore’s motion to dismiss Count III is
denied. Provident’s motion to dismiss Counts I and I is denied; its motion to dismiss Count III is
granted. Count IILas to Provident is dismissed without prejudice. Latham has twenty-one days from
the date of this Memorandum Opinion and Order to amend his complaint if he can do so and remain
in compliance with Rule 11. Ifhe does not amend his complaint within that period, that claim will
be dismissed with prejudice.

ENTER:

UNITED STATES DISTRICT JUDGE
PAUL E. PLUNKETT

parep: _MAY ~ 5 2004

-~18-


Latham argues that it is well established that TILA is violated if an Election to Not Cancel is
presented at the closing with the Notice of Right to Cancel. (P1.’s Consol. Resp. at 5.) While not
agreeing with Latham’s conclusion at this time, we do find that he has stated a claim under TILA.

A borrower’s right to rescind the loan transaction must be “clearly and conspicuously
disclose[d].” Rodash v. AIB Mortgage Co., 16 F.3d 1142, 1146 (11th Cir. 1994) (citing 15 U.S.C.
§ 1635(a); 12 C.F.R. § 226.23(b)(2)), abrogated in part on other grounds, Veale vy. Citibank, F.S.B.,
85 F.3d 577 (11th Cir. 1996), Latham has alleged that this right was interfered with by the
simultaneous presentation at the closing of both the Notice of Right to Cancel and the Election to
Not Cancel. (Compl. { 18, 21.) In Pudphus v. Sullivan, 2003 WL 1964333 (N.D. Ill. Apr. 28,
2003), we found that plaintiff stated a claim for failure to provide notice of rescission rights under
TILA when she alleged that, although her confirmation of election not to rescind was dated three
business days after the closing, she was directed to sign it on the day of the closing. Jd. at *15. We
do not find that Latham’s allegations differ significantly from those in Pulphus.’ By providing for
a three-day rescission period, which is unqualified and which can be waived only by the borrower
under certain circumstances, see 12 C.F.R. § 226.23(e), Congress intended to give substantial
protection to borrowers. See Velazquez v. HomeAmerican Credit, Inc., 254 F, Supp. 2d 1043, 1044-
46 (N.D. Ill. 2003). See also Craig Varga, Finance Charges for Consumer Credit Under the Truth
in Lending Act — A Report to the United States Congress, 990 PLI/Corp 455 (May 1997) (noting

three-day “cooling off” period extends to borrowers in order to review loan documentation, reassess

° In Pulphus, we cited to Rodash to support our decision that plaintiff had stated a claim under TILA. RLCA
argues that Rodash is not good authority for the proposition that a post-dated Election to Not Cancel can support a claim
for inadequate notice of rescission rights. It says that in Smith v. Highland Bank, 108 F.3d 1325 (11th Cir. 1997),
Rodash’s holding was limited to its facts. The Smith court did distinguish Rodash but still undertook an examination
of the “circumstances of the transaction” to find that the mortgagee did not violate TILA’s requirement of clear and
conspicuous disclosure of the right to rescind. See Smith, 108 F.3d at 1327.

-8-


N
Minute Order Form (06/97)

United States District Court, Northern District of Illinois

N of Assigned Judy Sitting Judge if Other
or Magistrate Judge Paul E. Plunkett than Assigned Juge
CASE NUMBER 03 C 7094 DATE 5/5/2004
CASE Eddie Latham vs. Residential Loan Centers of America, Inc., et al.
TITLE

Un the following box (a) indicate the party filing the motion, ¢.g,, plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

of the motion being presented.]

qi)

MOTION:

DOCKET ENTRY:

qd) im Filed motion of [ use listing in “Motion” box above.]

(2) a Brief in support of motion due

(3) i) Answer brief to motion due___. Reply to answer brief due

(4) a Ruling/Hearing on eset for att

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

(6) o Pretrial conference[held/continued to] [set for/re-set for]on__——ssetfor_— at.

(7) ao Trial[set for/re-set for]on_ at

(8) oO [Bench/Jury trial] [Hearing] held/continued to__—__at.

(9) o This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OOFRCP4(m) OLocal Rule 41.1 CFRCP4I(a)\(1) O FRCP41(a)(2).

(10) M [Other docket entry] Enter Memorandum Opinion and Order. Defendant Residential Loan Centers

of America, Inc.’s motion to dismiss Counts I and III (18-1) is denied. Defendant Lake Shore Title
Agency’s motion to dismiss Count III (15-1) is denied. Defendant Provident Bank’s motion to dismiss
(19-1) is denied as to Counts J and II, but is granted as to Count III; Count III as to defendant Provident
Bank is dismissed without prejudice. Plaintiffis given to 5/26/04 to amend his complaint. If plaintiff does
not amend the complaint, Count III as to defendant Provident Bank will be dismissed with prejudice.

a [For further detail see order attached to the original minute order.]

No notices required, advised in open court

No notices required,
4 number of notices

Document

Notices mailed by judge’s staff. MAY 9 6 2004
Notified counsel by telephone. date docketed
Docketing to mail notices.

Mail AO 450 form. . “of dod JM.

Copy to judge/magistrate judge.

315104

date matted notice

courtroom
cw deputy’s
initials ow
Date/time seceiyed in
£___ Sentral Clerk's Office railing deputy initials

Tee baa



through Lakeshore, engaged in the deceptive act of providing Latham with a Notice of Right to
Cancel and Election to Not Cancel simultaneously. (/d. f§ 15, 16, 21,47.) This was done in order
to induce Latham to sign a note and mortgage. (/d. 48.) These allegations are sufficient to satisfy
the requirements of Rule 9(b). See Lachmund v. ADI Investor Servs., Ine., 191 F.3d 777, 783 (7th
Cir. 1999) (noting that purpose of Rule 9(b) particularity requirement is to give party accused of
fraud adequate notice of specific activity that plaintiff alleges constituted fraud).

RLCA’s final argument, that it cannot be responsible under the Consumer Fraud Act for the
acts of its agent, Lakeshore, is unavailing. Latham attempts to hold RLCA liable for Lakeshore’s
actions at the closing based on an agency theory. Latham’s allegations of an agency relationship are
not subject to the particularity requirements of Rule 9(b), but still they must satisfy Rule 8. See
Guaranty Residential Lending, Inc. v. International Mortgage Ctr., Inc., 2003 WL 23305801, at *4
(N.D. Ill. Jan. 21, 2004) (agency relationship establishing liability for fraud not generally required
to be pled with particularity), There must be “some factual predicate . . . to create the inference of
agency.” See Azimi v. Ford Motor Co., 977 F. Supp. 847, 851 (N.D. Ill. 1996) (internal quotation
and citation omitted). Latham has alleged that “RLCA regularly used [Lakeshore] to handle its
closings.” (Compl. { 24.) From this statement, one can infer that an agency relationship existed.
See Williams v. Ford Motor Co., 990 F. Supp. 551, 554-55 (N.D. Ill. 1997) (“An agency relationship
exists when one ‘undertakes to manage some affairs to be transacted for [and] . . . on account of the
... principal.’”) (quoting Wargel v. First Nat’l Bank, 460 N.E.2d 331, 334 (Ill. App. Ct. 1984)).
Latham is asserting that RLCA participated in the fraud through its agent, Lakeshore. This is

sufficient to state a claim against RLCA. See Pulphus, 2003 WL 1964333, at *21.

-11-


at this time.’ See Arenson v. Whitehall Convalescent & Nursing Home, Inc., 164 F.R.D. 659, 664-
666 (N.D. Ill. 1996) (allowing class claim under Consumer Fraud Act and common law fraud to be
certified even though some individual issues may exist).

RLCA also argues that the Consumer Fraud Act claim should be dismissed because, under
Illinois law, “where disclosures are governed by and comply with a federal statute, those disclosures
do not violate the [Consumer Fraud Act].” (RLCA Mot. to Dismiss at 15.) We said above that
Latham has stated a claim under TILA. It has not yet been determined that RLCA has complied with
TILA. Its argument to dismiss based on this ground is premature.

Also unpersuasive is RLCA’s argument that the Consumer Fraud Act claim has not been pled
with the particularity required under Rule 9(b). To state a claim for a Consumer Fraud Act violation
one must plead: “(1) a deceptive act or practice; (2) intent on... defendant’s part that . . . plaintiff
rely on the deception; and (3) that the deception occurred in the course of conduct involving trade
or commerce.” Lynch Ford, Inc. v. Ford Motor Co., Inc., 957 F. Supp. 142, 147-48 (N.D. Ill. 1997)
(internal citations omitted). The allegation must be pled with the same particularity as required
under common law fraud. See Chaiken v. Fidelity & Guar. Life Ins. Co., 2003 U.S. Dist. Lexis
7262, at *9 (N.D. Ill. May 1, 2003). The Seventh Circuit has interpreted this to mean that a plaintiff
must plead the facts relating to the “who, what, when, where, and how” of the fraud. DiLeo vy.
Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990). All of these elements are found in the complaint.

The “who” are RLCA and Lakeshore. (Compl. § 47.) The “what, when, where, and how”

is the following: On February 28, 2001, in the course of closing the Loan at Latham’s house, RLCA,

'° Also as stated above, RLCA may reassert its position when Latham moves for class certification. At that
time, it will be Latham’s burden to prove the appropriateness of any class certification. See Valentino v. Howlett, 528
F.2d 975, 978 (7th Cir. 1976).

-10-


decision and found that “the case for class certification is even stronger when . . . plaintiffs seek only
declaratory relief.” Jd. .

With all due respect to the Jefferson court, we agree with the latter line of cases holding that
aclass claim under TILA seeking a declaration of the right to rescind can be maintained and disagree
with RLCA’s position that, as a matter of law, Latham’s class claim is untenable. At this stage in
the litigation, we do not find that Latham’s claim requires such an individualized inquiry as to
preclude the possibility of proceeding as a class.

We note that the majority of the cases discussed above addressed the availability of class
status for a TILA rescission claim in the context of a Rule 23 motion for class certification. We do
not certify a class at this time. Should Latham move to certify a class under Rule 23, Latham will
need to satisfy all of the requirements of Rule 23 and certain of RLCA’s arguments may then become
more relevant. Questions regarding common issues of law and fact and other inquires related to
class certification are better addressed at that time.’ Additionally, we note that even if a class is
certified, the class may be altered during the course of litigation. See Fed. R. Civ. P. 23(c)(1) (an
order certifying a class can be altered before final judgment).

In the alternative, RLCA seeks to dismiss Count J on the basis that Latham has failed to state
a claim upon which relief can be granted.® It argues that nothing in TILA or Regulation Z (the
regulations promulgated by the Federal Reserve Board to implement TILA) prohibits the

presentation of a post-dated Election to Not Cancel at the closing. (RLCA Mot. to Dismiss at 13.)

7 The Seventh Circuit has instructed that issues of class certification should be addressed before
deciding motions to dismiss under Rule 12(b)(6), See Rutan v. Republican Party of Ill., 868F.2d 943, 947
(7th Cir. 1989), aff'd in part, rev’d in part on other grounds 497 U.S. 62 (1990).

8 We note that RLCA has not moved to dismiss Count II of the complaint.

-7-



Lakeshore closed the Loan transaction; the closing occurred at Latham’s home. (Id. {§ 15,
16.) RLCA regularly uses Lakeshore to handle its closings. (/d. | 24.) Lakeshore regularly closes
loan transactions at the borrower’s home. (Jd. {17.) The Loan Documents were taken away after
the closing, copied and sent to Latham at a later time. (Id. 419.) A check for the Loan proceeds was
sent to Latham by courier service. (/d. 20.) RLCA eventually assigned the Loan to Provident. (Id.
426.)

Latham alleges that signing an Election to Not Cancel at the closing interferes with a
borrower’s right to cancel a loan transaction because the borrower signs the document, which states
he is not exercising his right to cancel, at the same time he is notified of his right to cancel.’ (Id. J
21.) According to Latham, the only lawful way an Election to Not Cancel can be used is to have the
closing agent or other person in possession of the loan proceeds meet with the borrower three
business days after the closing, have the borrower execute the Election to Not Cancel and then
deliver the loan proceeds. (/d. 22.)

Because the Loan was secured by Latham’s home and not entered into for the purposes of
the initial acquisition or construction of that home, Latham alleges the Loan was subject to the right
to cancel under 15 U.S.C. § 1635 and 12 C.F.R. § 226.23.° (Id. 427.) Asking him to sign the
Election to Not Cancel at the closing violated 15 U.S.C. § 1635 and 12 C.F.R. § 226.23. (Id. | 28.)

Latham notified RLCA and Provident of his election to rescind the Loan by letter dated August 20,

* Latham signed a Notice of Right to Cancel at the closing. (Compl. Ex. J.) The Notice of Right to
Cancel described Latham’ sright to cancel the transaction within three business days of a certain date. Latham
acknowledgedreceipt of this document and dated it February 28, 2001, the date of the closing. The Election
to Not Cancel, also signed by Latham, is dated March 5, 2001, but Latham asserts that he signed it at the
closing and post-dated it. (Compl. ¥ 18; Pl.’s Consol. Resp. at 2-3.)

* Section 226.23 sets forth a consumer’s right to rescind certain credit transactions.

-3-


(Compl. § 38.) Provident says that the purported class has nothing to do with it. Latham argues,
however, that the class is not unrelated to Provident. Latham seeks to make Provident liable for only
the loans that were assigned to it and which otherwise meet the class definition. (Pl.’s Consol. Resp.
at 10-11.)

We do not believe this issue is ripe for determination at this time. See Szabo v. Bridgeport
Machines, Inc., 249 F.3d 672, 675-78 (7th Cir. 2001) (discussing different standard and judicial
inquiry for Rule 12(b)(6) motion to dismiss and Rule 23 motion for class certification). Latham, as
the putative class representative, has a claim against Provident as assignee of his loan. (Compl. {
30; Ex. H), We have not yet certified a class, and until a class has been certified, we decline to
engage in inquires related to standing or whether Provident is a proper defendant ina class claim.”
Cf. Payton v. County of Kane, et al., 308 F.3d 673, 677-78 (7th Cir. 2002) (noting that Supreme
Court has said that issues of class certification should addressed before standing issue; suggesting
class action should go forward at least until Rule 23 certification decision even where named
plaintiffs have direct claim only against certain defendants; and noting possibility of certification of
defendant class). Provident’s motion to dismiss Latham’s class claim (Count I) and his individual

claim (Count II) is denied as to a potential rescission remedy.

B. Class Action Consumer Fraud Act Claim
Provident seeks to dismiss Latham’s Consumer Fraud Act claim on the basis that, as an

assignee, it cannot be liable under the statute. Latham responds, saying that, under [Illinois law,

? We note that under Rule 23(b)(2), Latham must show that “the party opposing the class has acted
or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctiverelief
or corresponding declaratory relief with respect to the class as a whole... .”

~14-


Jil. Claim Against Lakeshore
A. Class Action Consumer Fraud Act Claim

Lakeshore seeks to dismiss the Consumer Fraud Act claim filed against it. It argues that a
class action cannot be maintained (it adopts RLCA’s arguments on this point) and that Latham has
not stated a claim under the Consumer Fraud Act."°

We have already addressed the class action issue and need not repeat it here. We also find
unavailing Lakeshore’ s argument that Latham has not stated a claim under the statute because he has
not alleged that it engaged in any deceptive act or practice. As discussed above, Latham is alleging
that the act of presenting both the Notice of Right to Cancel and Election to Not Cancel at the closing
is deceptive. Latham also alleges that this act was done by Lakeshore at the closing that it
coordinated and that the act was done to induce him to sign the Loan note and mortgage. (Compl.
48.) To argue that the Election to Not Cancel contains nothing deceptive on its face misses the
point. (Lakeshore Mot. to Dismiss at 4.) The Consumer Fraud Act is aimed at “unfair or deceptive
acts or practices.” 815 ILCS 505/2 (1999). What type of activity falls within the ambit of those
words is to be determined on a case by case basis. People ex rel. Fahner v. Testa, 445 N.E.2d 1249,
1251-52 (Ill. App. Ct. 1983) (words of statute “must be defined on a case by case basis because of
the futility of trying to anticipate all the unfair methods and practices a fertile mind might devise”)

(citing Scott v. Association for Childbirth at Home, Int’l., 430 N.E.2d 1012, 1018 (Ill. 1981).

"> It also suggests that the Consumer Fraud Act does not apply to real estate transactions and cites to Maguire
y. Holcomb, 523 N.E.2d 688, 692 (Ill. App. Ct. 1988). In Maguire, the court noted an inconsistency in the language of
the Consumer Fraud Act and questioned whether it applied to a real estate transaction. The court did not, however, reach
the question as it found that the facts would not support a claim under the statute even if it did apply to real estate
transactions. The Consumer Fraud Act does apply to mortgage lenders and is applicable in the context of loan and
mortgage transactions, which is what this case involves. See, e.g., Vargas v. Universal Mortgage Co., 2001 U.S. Dist.
Lexis 6696 (N.D. Ill. May 18, 2001); Bankier v, First Fed. Sav. & Loan Ass'n, 588 N.E.2d 391 (Ill. App. Ct. 1992).

-16-



I. Facts

Latham is an Illinois resident, residing at a home he owns in Markham, Illinois. (Compl. J
4.) Latham purchased his home in 1979. (/d.) Defendant RLCA is an Illinois corporation with
offices in Des Plaines, Illinois. (/d. {| 5.) It is engaged in the business of originating mortgages,
including many “subprime” mortgages.’ (/d.) Defendant Provident is a bank with offices in
Cincinnati, Ohio. (/d. 6.) Defendant Litton Loan Servicing LP (“Litton”) is a limited partnership
entity with its principal place of business in Houston, Texas.” (/d. 7.) Defendant Lakeshore, a title
company, is a limited liability company with its principal place of business in Elk Grove Village,
Illinois. (Ud. 7 10.) It may also be known as Murray Title Agency. (/d.) There are persons or
entities unknown to Latham (Does 1-5), who have or claim an interest in his loan. (/d. § 11.)

On or about February 28, 2001, Latham obtained a $55,250 adjustable rate mortgage loan
from RLCA, secured by his home (“Loan”). The Loan has an initial interest rate of 9.375% and a
maximum interest rate of 16.375%. (Jd. { 12.) Latham used the Loan proceeds for personal, family
or household purposes, namely, the payment of prior debts. (/d. 13.) The following documents
were signed by Latham in connection with the Loan transaction: (1) a note; (2) a mortgage; (3) a
HUD-1 settlement statement; (4) a TILA disclosure statement (disclosing an annual percentage rate
of 10.537%); (5) an itemization ofthe amount financed; and (6) an “affirmation on non-cancellation”

(“Election to Not Cancel”) (together, “Loan Documents”). (/d. {4 14, 18.)

' Subprime mortgages involve the extension of credit to higher-risk borrowers.

2 Litton was dismissed from this case with prejudice on April 23, 2004.

> By signing the Election to Not Cancel at the closing, Latham certified that he “has not exercised [his]
legal right to cancel the transaction within the time period permitted by law” and requests‘disbursement of

the loan proceeds pursuant to the terms of the loan contract.” (Compl. Ex. F.)

-2-


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

EDDIE LATHAM,

Plaintiff,

v. No. 03 C 7094

Paul E. Plunkett, Senior Judge
RESIDENTIAL LOAN CENTERS OF
AMERICA, INC., PROVIDENT BANK, doing
business as Provident Consumer Financial
Services, LITTON LOAN SERVICING LP,
LAKE SHORE TITLE AGENCY, a limited
liability company, also known as Murray
Title Agency, and DOES 1-5

waa ge 2004

Defendants.

wer vers SSS er

MEMORANDUM OPINION AND ORDER
PlaintiffEddie Latham (“Latham”) has sued defendants for violations of the Truth in Lending
Act (“TILA”), 15 U.S.C. § 1601 et seq. and violations of the Illinois Consumer Fraud and Deceptive
Business Practices Act (“Consumer Fraud Act”), 815 ILCS 505/1 et seq. Defendants Residential
Loan Centers of America, Inc. (“RLCA”), Provident Bank (“Provident”) and Lakeshore Title Agency
(“Lakeshore”) have filed motions to dismiss the claims asserted against them pursuant to Federal
Rule of Civil Procedure (“Rule”) 12(b)(6). For the reasons set forth below, the motions are granted

in part and denied in part.



IL. Claims Against Provident
A. Class Action and Individual TILA Claims

Provident seeks to dismiss both TILA claims against it on the basis that the alleged TILA
violations are not apparent on the face of the Loan documents. Under 15 U.S.C. § 1641 (a), argues
Provident, an assignee of a mortgage loan can be liable only if the violation is apparent on the face
of the disclosure statement, which is not the case here. Latham argues, however, that section
1641(c), dealing the rescission, is an exception to the standard set forth in section 1641(a). We agree
with Latham.

Section 1641(c) is titled “Right of rescission by consumer unaffected” and unequivocally
states that assignees are not exempt from claims for rescission: “Any consumer who has the right
to rescind a transaction under section 1635 of this title may rescind the transaction as against any
assignee of the obligation.” 15 U.S.C. § 1641(c) (1998). The language could not be more clear that
Latham can maintain a TILA rescission claim against Provident, an assignee. See Pulphus, 2003 WL
1964333, at *15-16.

Provident argues that even if it could be subject to a TILA claim for rescission, it cannot be
liable to the class, especially for statutory damages, because the class, as set forth in Latham’s
complaint, is unrelated to Provident. It also asserts that the claim for damages is untimely.

We agree that Provident cannot be liable for damages. Section 1641 governs assignee
liability under TILA. Section 1641(a) is titled “Prerequisites” and states:

“Except as otherwise specifically provided in this subchapter, any civil action for

a violation of this subchapter . .. which may be brought against a creditor may be

maintained against any assignee of such creditor only if the violation for which
such action . . . is brought is apparent on the face of the disclosure statement... .”

-12-



Provident takes the mortgage documents “subject to whatever infirmities the instruments had in the
hands of the original obligee.” (Pl.’s Consol. Resp. at 13.) We disagree with Latham’s position on
this issue.

The Illinois Supreme Court has stated that “knowingly receiving the benefits of another’s
fraud” is not actionable under the Consumer Fraud Act. Zekman v. Direct Am. Marketers, Inc., 695
N.E.2d 853, 859 (Ill. 1998). In order for Provident to be liable under the statute, Latham must allege
that it actually committed violations of the Consumer Fraud Act. Pulphus, 2003 WL 1964333, at
*21. This he has not done. There is no allegation of any wrongdoing on the part of Provident; all
of Latham’s allegations with respect to this claim are directed at the “unfair and deceptive acts and
practices” of RLCA and Lakeshore. (Compl. $4 47, 48, 49.)

Latham states that “[nJothing in Zekman . . . suggests that documents procured through
statutory fraud in violation of [the Consumer Fraud Act] become non-fraudulent . . . upon transfer
... or that such a transfer deprives the consumer of his or her rights.” (P1.’s Consol, Resp. at 15.)
However, Zekman’s holding is quite broad and “there is nothing in [that] opinion that suggests
mortgage assignees are exempt from its holding.” Pulphus, 2003 WL 1964333, at *21.

We find that Latham has not stated a claim against Provident under the Consumer Fraud Act.

Provident’s motion to dismiss Count III is granted.

-15-