Court Opinion

ID: 3147988
Source: CourtListenerOpinion
Date Created: 2015-10-22 18:40:15.181276+00
Date Added: 2024-06-11T11:55:20.855035
License: Public Domain

ILLINOIS OFFICIAL REPORTS
                                         Appellate Court

                 Cavalry Portfolio Services v. Rocha, 2012 IL App (1st) 111690

Appellate Court            CAVALRY PORTFOLIO SERVICES, Plaintiff-Appellee, v. GERARDO
Caption                    ROCHA, Defendant-Appellant.

District & No.             First District, First Division
                           Docket No. 1-11-1690

Rule 23 Order filed        September 17, 2012
Rule 23 Order
withdrawn                  October 17, 2012
Opinion filed              October 22, 2012

Held                       In an action to collect an assigned debt where the judgment entered for
(Note: This syllabus       plaintiff incorrectly stated that a trial was held, even though defendant did
constitutes no part of     not appear for trial and an ex parte judgment was entered, the denial of
the opinion of the court   defendant’s petition under section 2-1401 of the Code of Civil Procedure
but has been prepared      to vacate the judgment was reversed and the cause was remanded, since
by the Reporter of         defendant had a meritorious claim that the assignments of the debt did not
Decisions for the          comply with section 8b of the Collection Agency Act.
convenience of the
reader.)

Decision Under             Appeal from the Circuit Court of Cook County, No. 10-M1-165794; the
Review                     Hon. Rhoda D. Sweeney, Judge, presiding

Judgment                   Reversed and remanded.
Counsel on                 Robert Habib and Jason Knuckey, both of Chicago, for appellant.
Appeal
                           Shindler Law Firm, of Schaumburg (Anthony P. Bernardi, of counsel),
                           for appellee.

Panel                      JUSTICE CUNNINGHAM delivered the judgment of the court, with
                           opinion.
                           Presiding Justice Hoffman and Justice Karnezis concurred in the
                           judgment and opinion.

                                              OPINION

¶1          This appeal arises from a judgment that was entered against defendant-appellant Gerardo
        Rocha (Rocha) on February 28, 2011, and also a May 16, 2011 order that denied Rocha’s
        petition to vacate judgment pursuant to section 2-1401 of the Illinois Code of Civil Procedure
        (Code) (735 ILCS 5/2-1401 (West 2010)). On appeal, Rocha argues that: (1) the trial court
        erred in denying his section 2-1401 petition to vacate the judgment because he presented a
        meritorious defense; (2) plaintiff-appellee Cavalry Portfolio Services (Cavalry Portfolio)
        failed to prove an account stated or that the parties entered into a contract; and (3) the trial
        court erred in denying his section 2-1401 petition to vacate the judgment because he acted
        with due diligence in contesting the original action and filing the section 2-1401 petition. For
        the following reasons, we reverse the judgment of the circuit court of Cook County and
        remand the matter for further proceedings.

¶2                                          BACKGROUND
¶3          On July 20, 2010, Cavalry Portfolio filed a complaint against Rocha in the circuit court
        of Cook County alleging breach of contract. Cavalry Portfolio claimed that Rocha opened
        a credit card or line of credit account with Washington Mutual Bank and subsequently
        defaulted by failing to make payments, resulting in a balance due to Cavalry Portfolio in the
        amount of $12,320.20. The complaint alleged that Cavalry Portfolio was an assignee of
        Cavalry SPV I, LLC, and Cavalry SPV I, LLC, was an assignee of Washington Mutual Bank.
        Attached to the complaint were the following: account statements from Washington Mutual
        Bank stating that ownership of Rocha’s account had been transferred to Chase Bank; and
        account statements from Chase Bank. Also attached to the complaint were: letters that
        assigned the rights, title, and interest of unspecified accounts from Chase Bank to Riverwalk
        Holdings, Ltd., from Riverwalk Holdings, Ltd., to Cavalry SPV I, LLC, and from Cavalry
        SPV I, LLC, to Cavalry Portfolio.
¶4          On September 2, 2010, Rocha was served by substitute service. On September 8, 2010,
        Rocha filed an appearance through counsel. On November 15, 2010, both parties appeared

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     and the matter was set for trial on February 28, 2011. Rocha was given 28 days to answer or
     otherwise plead. However, Rocha did not file an answer to the complaint. On February 28,
     2011, neither Rocha nor Rocha’s counsel appeared for trial and an ex parte judgment was
     entered against Rocha in the amount of $12,670.20. The trial court order indicates that a
     judgment was entered against Rocha, after trial. On May 5, 2011, Rocha filed a section 2-
     1401 petition to vacate the judgment. Rocha’s section 2-1401 petition stated that he became
     aware of the judgment on May 2, 2011. The petition stated that Rocha had a meritorious
     defense because Cavalry Portfolio did not have standing to proceed pursuant to section 8b
     of the Collection Agency Act (Act) (225 ILCS 425/8b (West 2008)). The petition also stated
     that Rocha acted with due diligence in contesting the judgment by filing the petition as soon
     as he learned of the judgment. Attached to the petition was Rocha’s affidavit, which stated
     that he had not incurred the expenses set forth in the complaint, he was not aware of who the
     plaintiff was, and he was never shown any documents transferring any of his accounts to the
     plaintiff.
¶5       On May 16, 2011, the trial court denied Rocha’s section 2-1401 petition without a
     hearing. On June 14, 2011, Rocha filed a timely notice of appeal.

¶6                                         ANALYSIS
¶7       On May 16, 2011, the trial court entered a final order denying Rocha’s section 2-1401
     petition to vacate the judgment entered against him on February 28, 2011. On June 14, 2011,
     Rocha filed a timely notice of appeal. This court has jurisdiction to consider Rocha’s
     arguments on appeal pursuant to Illinois Supreme Court Rule 304(b)(3) (eff. Feb. 26, 2010).
¶8       We first examine Rocha’s argument that the trial court erred in denying his section 2-
     1401 petition to vacate the judgment because he presented a meritorious defense. A
     petitioner is entitled to relief under section 2-1401 of the Code when he sets forth specific
     factual allegations supporting each of the following elements: (1) the existence of a
     meritorious defense or claim; (2) due diligence in presenting the defense or claim to the trial
     court in the original action; and (3) due diligence in filing the section 2-1401 petition for
     relief. Fiala v. Schulenberg, 256 Ill. App. 3d 922, 929, 628 N.E.2d 660, 665 (1993).
¶9       The parties suggest that we apply the abuse of discretion standard of review to the trial
     court’s ruling denying Rocha’s section 2-1401 petition. We note that a recent supreme court
     decision, People v. Vincent, 226 Ill. 2d 1, 14, 871 N.E.2d 17, 26 (2007), held that when a trial
     court dismisses a section 2-1401 petition, or enters judgment on the pleadings of said petition
     without holding an evidentiary hearing, the standard of review to be applied is de novo. The
     Vincent court recognized that applying the de novo standard of review conflicted with prior
     case law that held that the abuse of discretion standard is to be applied to a trial court’s ruling
     in those circumstances. Id. However, the court found that the application of the abuse of
     discretion standard was based on an erroneous belief that a section 2-1401 petition invoked
     the equitable powers of the court. Id. at 15, 871 N.E.2d at 27. The court reasoned that when
     the legislature abolished the common law writs in favor of the section 2-1401 statutory
     remedy, it became inaccurate to view the relief in strictly equitable terms. Id. at 16, 871
     N.E.2d at 27. Because relief afforded by section 2-1401 is no longer purely discretionary, it

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       would be incorrect to apply the abuse of discretion standard for every disposition under
       section 2-1401 of the Code. Id.
¶ 10        However, many, more recent decisions of the appellate court have recognized that the
       Vincent decision dealt with a narrow issue under section 2-1401(f) in which a judgment was
       challenged for voidness. The Vincent decision did not involve the due diligence, meritorious
       defense, and two-year limitation requirements that apply to other actions brought under
       section 2-1401. Rockford Financial Systems, Inc. v. Borgetti, 403 Ill. App. 3d 321, 326-27,
       932 N.E.2d 1152, 1158 (2010); see also Blazyk v. Daman Express, Inc., 406 Ill. App. 3d 203,
       206, 940 N.E.2d 796,798-99 (2010). The Borgetti court found that the allegation of voidness
       in Vincent had nothing to do with equitable principles. Borgetti, 403 Ill. App. 3d at 327, 932
       N.E.2d at 1158. The court found that “equitable principles and the exercise of discretion still
       apply in section 2-1401 proceedings not involving judgments alleged to be void.” Id. at 328,
       932 N.E.2d at 1159. The Borgetti court reasoned that due diligence cannot be reviewed under
       the de novo standard because it is a mixed question of law and fact and is a fact-intensive
       inquiry suited to balancing and not bright lines. Id. at 324, 932 N.E.2d at 1156. The court
       held that a typical section 2-1401 analysis is two-tiered: (1) the issue of a meritorious defense
       is a question of law and subject to de novo review; and (2) if a meritorious defense exists,
       then the issue of due diligence is subject to abuse of discretion review. Id. at 327, 932 N.E.2d
       at 1159. We agree with the holding and reasoning in Borgetti and Blazyk. Thus, we apply the
       de novo standard in reviewing whether Rocha presented a meritorious defense in his section
       2-1401 petition, and apply the abuse of discretion standard in reviewing whether he complied
       with the due diligence requirements of section 2-1401.
¶ 11        Rocha argues that Cavalry Portfolio did not have standing to bring suit against him
       because none of the account assignments in the complaint complied with section 8b of the
       Act. Section 8b of the Act states, in pertinent part:
                 “§ 8b. Assignment for collection. An account may be assigned to a collection agency
            for collection with title passing to the collection agency to enable collection of the
            account in the agency’s name as assignee for the creditor provided:
                 (a) The assignment is manifested by a written agreement, separate from and in
            addition to any document intended for the purpose of listing a debt with a collection
            agency. The document manifesting the assignment shall specifically state and include:
                     (i) the effective date of the assignment; and
                     (ii) the consideration for the assignment.
                                                   ***
                 (e) No litigation shall commence in the name of the licensee as plaintiff unless: (i)
            there is an assignment of the account that satisfies the requirements of this Section and
            (ii) the licensee is represented by a licensed attorney at law.” 225 ILCS 425/8b(a), (e)
            (West 2008).
       Rocha also points out that “[i]mplicit in the statute is a third requirement that the contract of
       assignment specifically state the relevant identifying information for the account that is being
       assigned.” Unifund CCR Partners v. Shah, 407 Ill. App. 3d 737, 744, 946 N.E.2d 885, 892
       (2011).

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¶ 12        In its complaint, Cavalry Portfolio claimed that it was an assignee of Cavalry SPV I,
       LLC, and Cavalry SPV I, LLC, was an assignee of Washington Mutual Bank. Attached to
       the complaint were account statements from Washington Mutual Bank stating that ownership
       of Rocha’s account had been transferred to Chase Bank. Also attached to the complaint were
       letters that assigned the rights, title, and interest of unspecified accounts from Chase Bank
       to Riverwalk Holdings, Ltd., from Riverwalk Holdings, Ltd., to Cavalry SPV I, LLC, and
       from Cavalry SPV I, LLC, to Cavalry Portfolio. Upon review of the letters of assignment,
       it is clear that each assignment failed to comply with at least one aspect of the requirements
       of section 8b of the Act. Many of the assignments leading to the original complaint against
       Rocha failed to specify the consideration and the account number in question of either the
       assignor, assignee or Rocha, and failed to identify Rocha by name. Therefore, all of the
       letters of assignment attached to Cavalry Portfolio’s complaint failed to comply with section
       8b of the Act. Thus, Rocha’s section 2-1401 petition presented a meritorious defense.
¶ 13        In response, Cavalry Portfolio does not attempt to rebut Rocha’s argument that he has a
       meritorious defense to the original complaint. Rather, Cavalry Portfolio argues that Rocha
       forfeited his argument that he has a meritorious defense and that Cavalry Portfolio lacked
       standing to bring suit against him, because he failed to raise it in a timely manner before the
       trial court. Greer v. Illinois Housing Development Authority, 122 Ill. 2d 462, 508, 524
       N.E.2d 561, 582 (1988). Cavalry Portfolio also argues that Rocha’s failure to file an answer
       or appear at trial resulted in Rocha having admitted the allegations in Cavalry Portfolio’s
       complaint. In support of its argument, Cavalry Portfolio claims that the instant case is
       analogous to Mortgage Electronic Registration Systems, Inc. v. Barnes, 406 Ill. App. 3d 1,
       940 N.E.2d 118 (2010).
¶ 14        In Barnes, the defendant was served with a complaint, but failed to answer the complaint.
       Id. at 3, 940 N.E.2d at 121. A default judgment was entered against the defendant. Id. The
       defendant then filed an emergency motion to stay the foreclosure sale. Id. After the property
       in question was sold, the defendant filed a section 2-1401 petition to vacate the foreclosure
       judgment because the plaintiff lacked standing and had no interest in the property. Id. The
       trial court denied the defendant’s section 2-1401 petition. Id. The appellate court held that
       the defendant failed to timely raise the standing issue before the trial court where she failed
       to answer the complaint, was defaulted, participated in the proceedings by petitioning the
       court for a continuation of sale, and subsequently attempted to raise the standing issue after
       the foreclosure and sale. Id. at 6-7, 940 N.E.2d at 123. The court also held that because all
       well-pleaded allegations of a complaint are admitted by a defendant held in default, the
       defendant admitted that the plaintiff had standing. Id. at 7, 940 N.E.2d at 124. Thus, Cavalry
       Portfolio argues that pursuant to Barnes, Rocha forfeited his argument that Cavalry Portfolio
       lacked standing because he failed to raise it in a timely manner before the trial court. We do
       not agree.
¶ 15        We find that the facts in the instant case are distinguishable from the facts in Barnes.
       This is not a case in which Rocha participated in the proceedings by filing responsive
       pleadings and then subsequently raised the issue of standing. Rocha’s first response to
       Cavalry Portfolio’s complaint was his section 2-1401 petition, which raised the issue of
       Cavalry Portfolio’s lack of standing. In his brief before this court, Rocha’s counsel explains

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       that after Rocha’s appearance was filed, his office inadvertently miscalendered the trial
       court’s order that was entered on November 15, 2010. The court’s order set the matter for
       trial and also gave Rocha 28 days to answer or otherwise plead. Rocha’s counsel claims that
       because his office did not calendar the court’s order, he and Rocha failed to file an answer
       or appear for trial. This explanation was not included in the section 2-1401 petition before
       the trial court. However, the petition did state that Rocha acted diligently in filing an
       appearance and contesting the action as soon as counsel was aware of the judgment entered
       against Rocha. Also, Rocha’s section 2-1401 petition was filed well within two years after
       the entry of the trial court’s judgment as required by the Code. See 735 ILCS 5/2-1401 (West
       2010). On its face, Rocha’s section 2-1401 petition shows that he presented his lack of
       standing argument to the trial court at the first opportunity of which he was aware, unlike the
       defendant in Barnes.
¶ 16        Moreover, unlike the defendant in Barnes, Rocha was not defaulted. Although Rocha
       failed to appear at trial, the record on appeal explicitly states: “[j]udgment for plaintiff after
       trial for $12,670.20 versus Gerardo Rocha.” Nowhere in the trial court’s order does it state
       that a default judgment was entered against Rocha. On the contrary, the trial court’s order
       provides a line item for indicating whether the judgment is by default. The court, specifically,
       entered its order indicating that there was a trial. Therefore, the record does not support
       Cavalry Portfolio’s assertion that the judgment against Rocha was entered by default, as that
       term is commonly understood. However, Cavalry Portfolio explicitly states in its brief before
       this court: “Although Rocha did, in fact, fail to file an answer or otherwise plead, he was not
       defaulted. Rather, a judgment after trial was entered against him.” (Emphasis added.)
       Cavalry Portfolio’s argument suggests that for purposes of the validity of the judgment, there
       was a trial. On the other hand, for purposes of preventing Rocha from raising a defense, there
       was not. Cavalry Portfolio cannot have it both ways. Thus, we hold that Rocha did not forfeit
       his argument that Cavalry Portfolio lacked standing to bring suit against him.
¶ 17        Rocha also argues that he acted with due diligence in contesting the action. Section 2-
       1401 of the Code requires the petitioner to show due diligence in presenting his meritorious
       defense to the trial court in the original action and due diligence in filing a section 2-1401
       petition for relief. Fiala, 256 Ill. App. 3d at 929, 628 N.E.2d at 665. In this case, Rocha’s
       counsel first learned about the trial court’s judgment on May 2, 2011, and filed his section
       2-1401 petition on May 5, 2011. Thus, it is clear that Rocha acted with due diligence in filing
       the section 2-1401 petition.
¶ 18        Cavalry Portfolio argues that Rocha failed to act with due diligence in presenting his
       defense to the trial court because he failed to file an answer to the complaint and failed to
       appear at trial. However, as Rocha points out, a trial court ruling denying section 2-1401
       relief can be vacated even in the absence of diligence where the defendant has a meritorious
       defense and actively seeks to vacate the judgment. Id. More important than the due diligence
       requirement is the requirement that substantial justice be achieved. Illinois courts have
       repeatedly held:
                “One of the guiding principles *** of section 2-1401 relief is that the petition invokes
            the equitable powers of the circuit court, which should prevent enforcement of a default
            judgment when it would be unfair, unjust, or unconscionable. [Citations.] *** Because

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           a section 2-1401 petition is addressed to equitable powers, courts have not considered
           themselves strictly bound by precedent, and where justice and good conscience may
           require it a default judgment may be vacated even though the requirement of due
           diligence has not been satisfied.” Smith v. Airoom, Inc., 114 Ill. 2d 209, 225, 499 N.E.2d
           1381, 1388 (1986) (citing American Consulting Association, Inc. v. Spencer, 100 Ill.
           App. 3d 917, 427 N.E.2d 579 (1981), Manny Cab Co. v. McNeil Teaming Co., 28 Ill.
           App. 3d 1014, 329 N.E.2d 376 (1975), and George F. Mueller & Sons, Inc. v. Ostrowski,
           19 Ill. App. 3d 973, 313 N.E.2d 684 (1974)).
       The legal principles of the cases cited above are instructive in the analysis of the instant case.
       Like the defendants in the cases cited, Rocha suffered an adverse judgment without having
       appeared at trial, and it would be unjust to enforce the judgment in light of his meritorious
       defense. As previously discussed, Rocha has shown that none of the assignments attached
       to Cavalry Portfolio’s complaint complied with section 8b of the Act. This is certainly a
       situation in which justice and good conscience require this court to reverse the trial court’s
       order that denied Rocha’s section 2-1401 petition to vacate the judgment. Thus, even if we
       were to agree with Cavalry Portfolio that Rocha failed to fulfill the due diligence requirement
       of section 2-1401, we would reverse the trial court’s order based on the merits of Rocha’s
       defense. We hold that the trial court abused its discretion in denying Rocha’s section 2-1401
       petition to vacate the judgment.
¶ 19       We note that Rocha also argues that he had a meritorious defense to the trial court’s
       judgment because Cavalry Portfolio failed to prove an account stated and failed to prove that
       the parties entered into a contract. However, as Cavalry Portfolio points out, Rocha presented
       these arguments for the first time on appeal and thus they are forfeited. See Carlson v.
       Glueckert Funeral Home, Ltd., 407 Ill. App. 3d 257, 261, 943 N.E.2d 237, 241 (2011).
       Therefore, these arguments were not considered and have no bearing on the resolution of this
       case.
¶ 20       For the foregoing reasons, we reverse the judgment of the circuit court of Cook County
       that denied Rocha’s section 2-1401 petition to vacate the judgment entered against him. We
       remand the matter to the trial court for further proceedings consistent with this opinion.

¶ 21       Reversed and remanded.

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