Laura Zuniga v. Pierce and Associates
2017 U.S. App. LEXIS 2815
| 7th Cir. | 2017Background
- Multiple appellants defaulted on FHA-insured residential mortgages; law-firm appellees (representing loan servicers) filed Illinois foreclosure complaints using the statutory short-form template that includes allegations seeking personal deficiency judgments.
- Appellants sued under the Fair Debt Collection Practices Act (FDCPA), arguing the foreclosure complaints falsely threatened deficiency judgments because FHA policy allegedly precludes mortgagees from pursuing deficiencies without FHA authorization.
- Appellants attached to their complaints an FHA FOIA response stating FHA does not routinely pursue deficiency judgments and does not track such judgments; appellees moved to dismiss under Rule 12(b)(6).
- In the Heng case, appellants filed a first amended complaint and later submitted a non-party letter as an exhibit to their response; the district court struck the exhibit and denied leave to further amend, then dismissed the complaints.
- The Seventh Circuit consolidated the appeals, reviewed dismissal de novo, and affirmed: plaintiffs failed to plausibly allege FDCPA violations; the court also affirmed the striking of the exhibit and denial of leave to amend as futile.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether foreclosure complaints alleging potential deficiency judgments violated the FDCPA by making false/misleading threats | Appellants: alleging a deficiency violated FDCPA because FHA policy never authorizes deficiency judgments without FHA approval, so defendants threatened an action they could not or would not take | Appellees: Illinois short-form complaints mirror statutory template; FHA regulations and Handbook do not prohibit mortgagees from seeking deficiencies absent FHA authorization | Held: No FDCPA claim; plaintiffs failed to show FHA authorization is required before seeking deficiencies, so allegations were not false or misleading |
| Whether FHA regulations/policy bar mortgagees from seeking deficiency judgments absent FHA authorization | Appellants: FHA policy and prior HUD guidance prevent mortgagee from pursuing deficiency judgments without FHA approval | Appellees: 24 C.F.R. §203.369 and FHA Handbook grant FHA authority to require or request deficiencies but do not prohibit mortgagees from pursuing them on their own | Held: FHA rules do not bar mortgagees from seeking deficiencies absent FHA request/authorization |
| Whether the district court abused its discretion in striking a non-party letter exhibit submitted with a brief opposing dismissal (Heng) | Appellants: allowed to elaborate and attach materials in opposition to a 12(b)(6) motion to illustrate facts they expect to prove | Appellees: exhibit was outside the pleadings, not referenced in complaint, and not material to decide the 12(b)(6) motion | Held: No abuse of discretion; exhibit was not consistent with the pleadings and not material |
| Whether denial of leave to amend was improper | Appellants: leave should be granted; the exhibit would show how consumers could be misled and would cure pleading defects | Appellees: amendment would be futile because FHA law does not support plaintiffs’ theory | Held: Denial of leave to amend affirmed as amendment would be futile |
Key Cases Cited
- St. John v. Cach, LLC, 822 F.3d 388 (7th Cir.) (standard for reviewing Rule 12(b)(6) dismissal)
- Jackson v. Blitt & Gaines, P.C., 833 F.3d 860 (7th Cir.) (plausibility standard under Iqbal/Twombly applied to FDCPA claims)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S.) (pleading standard requiring plausible claims)
- Marquez v. Weinstein, Pinson & Riley, P.S., 836 F.3d 808 (7th Cir.) (§1692e can apply to representations made in court filings)
- Avila v. Rubin, 84 F.3d 222 (7th Cir.) (unsophisticated consumer standard)
- Defender Security Co. v. First Mercury Ins. Co., 803 F.3d 327 (7th Cir.) (plaintiff may elaborate or attach materials when opposing a 12(b)(6) motion)
- Geinosky v. City of Chicago, 675 F.3d 743 (7th Cir.) (flexibility in opposing Rule 12(b)(6) but materials must be consistent with pleadings)
- Zuppardi v. Wal-Mart Stores, Inc., 770 F.3d 644 (7th Cir.) (abuse-of-discretion review for motions to strike)
- McLeod v. Arrow Marine Transp., Inc., 258 F.3d 608 (7th Cir.) (courts may consider exhibits on appeal when reviewing denial of leave to amend)
- Runnion v. Girl Scouts of Greater Chicago & Nw. Ind., 786 F.3d 510 (7th Cir.) (standard of review for denial of leave to amend)
- Arreola v. Godinez, 546 F.3d 788 (7th Cir.) (grounds to deny leave to amend)
- Cohen v. American Security Ins. Co., 735 F.3d 601 (7th Cir.) (futility-based denials of leave to amend reviewed with de novo legal review)