On July 8
, 2014, the U.S. District Court for the Northern District of Illinois issued a favorable ruling for the asset purchasing industry. In
St. John v. CACH, LLC
, a consumer filed suit alleging several violations of the FDCPA after a state court judge dismissed the purchaser’s state court collection action against her. The consumer alleged that the purchaser’s conduct in the state court action was inherently false and misleading in violation of §1692e’s prohibition against false and misleading communications because it represented that it could prove its case but had no intention of actually doing so. She also argued that the purchaser intended to avoid her dispositive motion by non-suiting its own case and that this conduct was inherently unfair because the purchaser attempted to exploit procedural rules to benefit itself. The consumer also included a claim under the Illinois Consumer Fraud Act, alleging that the purchaser’s active concealment of evidentiary issues and standing as a material misrepresentation under the Act.
The purchaser attached documentation sufficient to prove its ownership and entitlement to the debt to its answer to the complaint and filed a motion for judgment on the pleadings. The purchaser argued that procedural defects in a state court complaint could not, as a matter of law, support an action under the FDCPA. The Court agreed explaining that it is well established in the Northern District that FDCPA claims cannot be based on violations of the Illinois state law pleading requirements.
See, e.g., Matmanivong v. Unifund CCR Partners,
No. 08 C 6415, 2009 WL 1181529, at *3 (N.D. Ill. Apr. 8, 2009);
Rosales v. Unifund CCR Partners,
No. 08 C 3533, 2008 WL 5156681, at *2 (N.D. Ill. Dec. 5, 2008);
Washington v. North Star Capital Acquisition, LLC,
No. 08 C 2823, 2008 WL 4280139, at *2 (N.D. Ill. Sept.
King v. Resurgence Fin., LLC,
No. 08 C 3306 (N.D. Ill. Nov. 3, 2008) (slip. op.)
The consumer countered that her cased was based on more than pleading defects. Specifically, she argued that her lawsuit was based on the fact that although the purchaser claimed it owned the debt in the state court proceedings, it did not actually own the debt. Further, she argued that res judicata and collateral estoppel barred the purchaser from proving its ownership of the account as the underlying state court collection action had been dismissed with prejudice in response to the consumer’s motion to dismiss for failure to plead standing.
The Court explained that the consumer could not establish the first element of collateral estoppel because there was not an identity of issues in the state and federal court actions. To establish collateral estoppel under Illinois law, Plaintiff must show that “(1) the issues decided in the prior adjudication are identical to issues presented for adjudication in the current proceeding; (2) there [is] a final judgment on the merits; and (3) the party against whom estoppel is asserted was a party or in privity with a party in the prior action.” Gambino v. Koonce, ___ F.3d ___, 2014 WL 2959130, at *3 (7th Cir. July 2, 2014) (quoting American Family Mut. Ins. Co. v. Savickas, 739 N.E.2d 445, 451 (Ill. 2000)). The issue decided by the judge in the state court action was not whether the purchaser owned the accounts but instead, whether the purchaser had adequately alleged standing. Thus, her collateral estoppel argument was unsuccessful.
Similarly, the consumer’s res judicata argument failed. Under Illinois law, “[r]es judicata applies if there is (1) a final judgment on the merits in an earlier action; (2) an identity of the causes of action; and (3) an identity of parties or their privies.” Ennenga v. Starns, 677 F.3d 766, 776 (7th Cir. 2012) (citing River Park, Inc. v.City of Highland Park, 184 Ill.2d 290, 234 Ill.Dec. 783, 703 N.E.2d 883, 889 (1998)). “Illinois employs a transactional test to determine whether two claims are the same for res judicata purposes.” Harmon v. Gordon, 712 F.3d 1044, 1055 (7th Cir. 2013). Under the transactional test, courts examine whether the claims arise from a single group of operative facts regardless if they are different theories of relief. See Dookeran v. County of Cook, Ill., 719 F.3d 570, 575 (7th Cir. 2013). Because the consumer’s credit card debt pre-dated the filing of the state court debt collection suit and the conduct during that action, there was not an identity of causes of action under Illinois law because the claims arose from different sets of operative facts.
As the purchaser was not barred by res judicata or collateral estoppel, the Court considered the affidavit and attachments to the purchaser’s answer to the consumer’s complaint and concluded that the purchaser did indeed purchase and own the accounts at issue. As a result, the Court ruled in favor of the purchaser on all of the consumer’s FDCPA claims and declined to exercise supplemental jurisdiction over her ICFA claims consistent with the typical policy of the Seventh Circuit.
The case is currently on appeal before the Seventh Circuit and we will update as the case progresses.
For more information about this case, contact Nicole M. Strickler at email@example.com or call (312) 334-3442. To view the opinion, click here: Order Granting Motion for Judgment on the Pleadings.