Opinion ID: 2080549
Heading Depth: 2
Heading Rank: 5

Heading: Restitution and the Voluntary Payment Doctrine

Text: Citing the other remedies permitted by law language of the Attorney Act, plaintiffs argue that the statute presents no barrier to their claim for restitution. Defendants argue that plaintiffs' restitution claim is merely an attempt to restate their unauthorized practice of law claim by placing a restitution label on it. They also allege that plaintiffs have failed to properly allege a cause of action for restitution, and that plaintiffs may not maintain an action for restitution where a specific contract governs the parties' relationship. We need not address these arguments because we agree with defendants that the voluntary payment doctrine bars plaintiffs' claim for restitution. `It has been a universally recognized rule that money voluntarily paid under a claim of right to the payment and with knowledge of the facts by the person making the payment cannot be recovered back on the ground that the claim was illegal. It has been deemed necessary not only to show that the claim asserted was unlawful, but also that the payment was not voluntary; that there was some necessity which amounted to compulsion, and payment was made under the influence of such compulsion.' Getto v. City of Chicago, 86 Ill.2d 39, 48-49, 55 Ill.Dec. 519, 426 N.E.2d 844 (1981), quoting Illinois Glass Co. v. Chicago Telephone Co., 234 Ill. 535, 541, 85 N.E. 200 (1908); Illinois Graphics Co. v. Nickum, 159 Ill.2d 469, 497, 203 Ill.Dec. 463, 639 N.E.2d 1282 (1994). The appellate court in Jenkins held that the voluntary payment doctrine barred the claims of all plaintiffs. Plaintiffs argue that the appellate court's decision took an extremely harsh view of the voluntary payment doctrine, one that is at odds with this court's decision in Illinois Graphics. In that case, an employer and its workers' compensation insurance carrier brought suit to recover payments made to the defendant employee who was later determined to be ineligible for benefits. The temporary total disability (TTD) benefits were paid while the claim was pending. At the arbitration hearing on the defendant's claim, it was determined that the defendant's medical records failed to show any causal connection between her work and her injury. The arbitrator denied her claim and the Industrial Commission affirmed that decision. No appeal was taken. The insurance carrier, State Farm, demanded that the defendant reimburse it for the TTD payments. The defendant refused and State Farm sued. The trial court dismissed the complaint and the appellate court affirmed. One of the grounds of the defendant's motion to dismiss was that recovery of the payments was precluded by the voluntary payment doctrine. On that issue, this court determined that the complaint stated a claim based on the theory that the payments were made under a mistake of fact. Although the complaint did not state that the payment was based upon a mistake of fact, it could reasonably be inferred that the payments were made on incorrect and incomplete information regarding the nature of the claimed injury. Under such circumstances, the voluntary payment doctrine did not completely negate the claim. Illinois Graphics, 159 Ill.2d at 497, 203 Ill.Dec. 463, 639 N.E.2d 1282. Plaintiffs argue that this court has lowered the standard enunciated in prior cases for determining when the voluntary payment doctrine will apply. They note that in Illinois Graphics, this court allowed a sophisticated insurance company to recover money voluntarily paid, even though the company must have known there was some chance that the defendant employee would not prevail on her claim. Unlike State Farm, plaintiffs argue, they proceeded with their loan transactions without full knowledge of the critical fact that no lawyer was involved in drafting the loan documents. We disagree that any standard has been lowered. We must point out that this court, in Illinois Graphics, did not allow the recovery of payments by State Farm. We merely held that the defendant's argument that the payments were voluntary did not completely negate State Farm's claim for reimbursement because the claim was based on a mistake-of-fact theory. There were other issues not related to the voluntary payment issue and the case was remanded to the trial court for further proceedings. Plaintiffs also argue that the appellate court in Jenkins gave no weight to the superior bargaining position of the defendant lenders, contrary to Illinois Graphics. Plaintiffs refer to the following statement from this court's opinion: In allowing the recovery, the court addressed the common law rule, known as the voluntary payments doctrine, that neither money paid under a claim of right with full knowledge of the underlying facts and absent coercion, fraud or a superior bargaining position by the transferee nor money paid under a mistake of law is recoverable. (Emphasis added.) Illinois Graphics, 159 Ill.2d at 491, 203 Ill.Dec. 463, 639 N.E.2d 1282. As is evident from the quoted statement, this court was referring to a previous case that was being discussed at that point, Liberty Mutual Insurance Co. v. Zambole, 141 Ill.App.3d 803, 96 Ill.Dec. 318, 491 N.E.2d 132 (1986). Later on in the opinion, this court clearly stated the well-established rule: The rule is that in the absence of fraud, misrepresentation, or mistake of fact money voluntarily paid under a claim of right to the payment, with full knowledge of the facts by the person making the payment, cannot be recovered unless the payment was made under circumstances amounting to compulsion. Illinois Graphics, 159 Ill.2d at 497, 203 Ill.Dec. 463, 639 N.E.2d 1282. Prior cases illustrate the application of the doctrine. In Ross v. City of Geneva, 71 Ill.2d 27, 34-35, 15 Ill.Dec. 658, 373 N.E.2d 1342 (1978), this court held that the plaintiff was not barred from recovering payments made to the defendant for a surcharge on electrical service required under an ordinance that was determined to be invalid. The record showed that the defendant had a policy of terminating service for nonpayment of charges and that the defendant had done so on several occasions. Thus, confronted with the choice of paying the surcharge or termination of service, the plaintiff was not barred from recovery of the sums paid. In Getto v. City of Chicago, 86 Ill.2d 39, 49-50, 55 Ill.Dec. 519, 426 N.E.2d 844 (1981), the plaintiffs were not barred by the voluntary payment doctrine from recovering payments made by them in excess of the amount owed under a municipal message tax. This court found that plaintiffs did not have full knowledge of the amounts they were paying and could not have made a proper statutory protest because the bills they received did not sufficiently itemize the charges being made. Getto, 86 Ill.2d at 49-50, 55 Ill.Dec. 519, 426 N.E.2d 844. Further, the court held that telephone service had become a necessity and that the implicit and real threat that telephone service would be terminated for nonpayment of the charges amounted to compulsion that would preclude application of the voluntary payment doctrine. Getto, 86 Ill.2d at 51, 55 Ill.Dec. 519, 426 N.E.2d 844. In Geary v. Dominick's Finer Foods, Inc., 129 Ill.2d 389, 135 Ill.Dec. 848, 544 N.E.2d 344 (1989), plaintiffs sued to recover sales taxes they had paid on tampons and sanitary napkins. The appellate court held that the plaintiffs had not sufficiently pleaded duress under the voluntary payment doctrine when they alleged that tampons and sanitary napkins were necessities. This court reversed. In discussing the voluntary payment doctrine as applied to the payment of taxes, this court noted that taxes voluntarily paid may not be recovered even if the taxes were imposed illegally, absent a statutory right of protest. However, taxes are not voluntarily paid where either the taxpayer lacked knowledge of the facts upon which to protest the taxes at the time they were paid, or the taxpayer paid the taxes under duress. This court found that tampons and sanitary napkins are necessities of life and that no reasonable alternative products exist. The plaintiffs could not have obtained the products without paying the tax. The court rejected the defendants' argument that the plaintiffs were required to plead that they could not purchase the products without paying the taxes or that the defendants threatened to or had an established policy of refusing to sell the products if a customer refused to pay the taxes. The court noted that State law required every retail store in Illinois to pay a state tax on receipts collected from the sale of their products. Chicago also imposed a city sales tax. Retail stores simply do not sell a product if the purchaser refuses to pay the tax on it. The court declined to require the plaintiffs to plead or perform a useless act. Courts have found coercion to be implied in certain circumstances. Thus, an actual threat is not necessary; implied duress is sufficient. Geary, 129 Ill.2d at 402-03, 135 Ill.Dec. 848, 544 N.E.2d 344. Plaintiffs in the instant cases complain that the appellate court gave no weight to the economic consequences of not paying the document preparation fees. They argue that had they discovered at the closing that a nonlawyer prepared the loan documents and refused to pay the fees, they would have either have been in breach of their contracts of sale in cases involving a purchase money mortgage or, in cases of a refinancing, they would have likely incurred costs at least equal to the amount of the document preparation fees. They argue that they were operating under a mistake of fact because the defendant lenders did not inform them that the loan documents were prepared by nonlawyers. However, the exhibits attached to plaintiffs' complaints demonstrate that the lenders fully disclosed that the document preparation fees were separate from any attorney fees. The closing statements contain separate places for the itemization of attorney fees and document preparation fees. Two lines below the space for the document preparation fee is a space to itemize any attorney fees, including the name of the attorney to whom the fee is paid. Accordingly, plaintiffs could not have mistakenly believed that the loan documents were prepared by attorneys. Both the Jackson and Porter closing statements show that no attorney fees were paid. Plaintiffs do not allege in their complaints or argue in their briefs that the lenders represented that attorneys prepared the documents, nor do they allege that they believed that attorneys prepared the documents. If they looked at their closing statements, any such belief would have been unreasonable. Therefore, we reject plaintiffs' argument that they were operating under a mistake of fact regarding who prepared the loan documents. Plaintiffs further argue that where document preparation fees of $300 or $400 are charged, borrowers are likely to assume that the documents were prepared by lawyers and are thus discouraged from retaining their own legal counsel. Even if that might be true where such large sums are charged for document preparation, no such conclusion can be drawn here, where the document preparation fees charged in the Jackson and Porter cases amounted to $60 and $70, respectively. Further, we note that plaintiffs do not plead any facts in their complaints that might demonstrate that they were compelled to either pay the fee or forgo their loan transactions. Unlike the plaintiffs in Geary, where the retail defendants were required by law to collect taxes on the products plaintiffs purchased, it is not clear that all mortgage lenders prepare their own documents or utilize the services of a document preparation service. In fact, the complaint in the Jackson case contains the following statement: A document preparation fee is `a separate fee that some lenders or title companies charge to cover their costs of preparation of final legal papers, such as a mortgage, deed of trust, note or deed.' (Emphasis added.) This statement is attributed to a publication of the Department of Housing and Urban Development. Thus, it is not certain, as it was in Geary, that plaintiffs here had no choice but to pay the fees charged by their lenders. For instance, plaintiffs do not allege that they were precluded by the lenders from having the documents prepared by their own attorneys. Reduced to its essence, plaintiffs' argument is that the preparation of loan documents by nonlawyers is illegal. However, the voluntary payment doctrine applies in the very circumstance where the payment sought to be recovered was illegally obtained by the defendant. Plaintiffs cannot avoid application of the doctrine by merely alleging that defendants engaged in the unauthorized practice of law. Plaintiffs argue that the voluntary payment doctrine should not be applied to them because that doctrine cannot be used to defeat public policy. They argue that where parties are not in pari delicto and the prohibition violated was intended to protect one of them, that party can recover money paid. The phrase in pari delicto means [e]qually at fault. Black's Law Dictionary 806 (8th ed.2004). The doctrine of in pari delicto embodies the principle that a plaintiff who has participated in wrongdoing may not recover damages resulting from the wrongdoing. Black's Law Dictionary 806 (8th ed.2004). Plaintiffs cite cases in support of their public policy argument. In Evans v. Funk, 151 Ill. 650, 38 N.E. 230 (1894), a probate judge acted as an attorney in obtaining a settlement of a dispute among heirs that was before his court. He obtained fees for this service. The heir who paid the money brought suit to recover it on the basis that it had been made to secure a settlement and not as attorney fees. This court allowed the recovery on the basis of the judge's power over the heir and the estate at issue and to protect the public from `fraudulent practice and artifices.' Evans, 151 Ill. at 661, 38 N.E. 230, quoting Baehr v. Wolf, 59 Ill. 470, 474, 1871 WL 8066 (1871). Plaintiffs also cite Ransburg v. Haase, 224 Ill.App.3d 681, 687, 167 Ill.Dec. 23, 586 N.E.2d 1295 (1992), where the plaintiffs sued to recover money paid to an architect, alleging that their contract was void because the architect misrepresented himself to be licensed in Illinois. The appellate court analyzed the Illinois Architecture Act in holding that the architect had violated the statute by holding himself out to the plaintiffs as an architect in Illinois. The purpose of the statute was to protect the public. The court distinguished cases cited by the architect, noting that there were no allegations that the plaintiffs knew that the architect was not licensed in Illinois. Rather, the architect represented himself to be so licensed. Plaintiffs cite other cases where courts refused to permit an unlicensed party to recover fees for services or to otherwise enforce a contract. See Lozoff v. Shore Heights, Ltd., 66 Ill.2d 398, 6 Ill.Dec. 225, 362 N.E.2d 1047 (1977) (attorney licensed in Wisconsin but not licensed in Illinois and who represented clients in Illinois with respect to an out-of court matter not allowed to recover fees); Tovar v. Paxton Community Memorial Hospital, 29 Ill.App.3d 218, 330 N.E.2d 247 (1975) (physician not licensed in Illinois could not enforce employment contract with hospital); Kaplan v. Tabb Associates, Inc., 276 Ill.App.3d 320, 212 Ill.Dec. 720, 657 N.E.2d 1065 (1995) (building contract was void where corporate architect was not licensed in Illinois). The cited cases are distinguishable from the instant case. In Evans, the probate judge misapplied funds meant for another purpose. In Ransburg, the architect misrepresented himself to be a licensed architect. In Lozoff, Tovar, and Kaplan, the unlicensed parties were seeking to enforce contracts that the courts determined were void and unenforceable. As was stated in Tovar, the courts will not aid a plaintiff who bases his cause of action on an illegal act. Tovar, 29 Ill.App.3d at 221, 330 N.E.2d 247. Here, however, no misrepresentation was involved and the lenders are not seeking to enforce void contracts. Rather, plaintiffs seek to recover payments voluntarily made with full knowledge as to the nature of the services rendered. Thus, we reject plaintiffs' public policy argument as it applies to their cases. Finally, plaintiffs argue that the voluntary payment doctrine cannot apply here because they did not actually pay any amounts out of pocket for the document preparation fees. Rather, they allege in their brief that the fees were generally deducted by the lenders from the loan proceeds and then paid over to Docu-Tech. Restitution is defined by Black's Law Dictionary as [T]he set of remedies associated with that body of law, in which the measure of recovery is [usually] based not on the plaintiff's loss, but on the defendant's gain, and [r]eturn or restoration of some specific thing to its rightful owner or status. Black's Law Dictionary 1339 (8th ed.2004). The doctrine of restitution contemplates, therefore, that some benefit has passed from the plaintiff to the defendant. Plaintiffs obviously believe that they are entitled to a return of that benefit. Whether it comes in the form of cash, a check, or a credit to plaintiffs' loan balances matters not. Plaintiffs cannot make a claim for restitution for money they claim to have paid, while simultaneously arguing that the voluntary payment doctrine cannot be applied because they did not make a payment. If the document fee that was paid in these cases was paid out of plaintiffs' loan proceeds, it nonetheless came out of plaintiffs' pocket in the end. They do not argue that the fees were paid by anyone but themselves. Under these circumstances, the voluntary payment doctrine applies.