STEPHEN STERN et al., Appellants and Cross-Appellees, v. NORWEST MORTGAGE, INC., Appellee and Cross-Appellant.
Nos. 82412, 82512 cons.
Supreme Court of Illinois
October 23, 1997
December 3, 1997
179 Ill. 2d 160
JUSTICES MILLER and NICKELS join in this dissent.
Peter C. Woodford and Christopher E. Paetsch, of Seyfarth, Shaw, Fairweather & Geraldson, of Chicago, for appellee and cross-appellant.
JUSTICE MILLER delivered the opinion of the court:
Stephen Stern and his wife, Catherine Harth (plaintiffs), filed a class action in the circuit court of Cook County against Norwest Mortgage, Inc. (defendant). Plaintiffs claimed that defendant violated the Mortgage Escrow Account Act (Escrow Act) (
I. BACKGROUND
In July 1992, plaintiffs obtained a mortgage loan from defendant in order to purchase a house in Chicago. Under the Escrow Act, plaintiffs had the option of pledging an interest-bearing time deposit with the mortgage lender in lieu of the lender‘s establishing an escrow account in order to cover the payment of anticipated taxes.
In June 1993, plaintiffs brought a class action against defendant alleging that defendant violated the Escrow Act (
Claiming that plaintiffs failed to state a claim upon which relief could be granted, defendant filed a section 2-615 motion to dismiss. On April 6, 1995, the trial court granted defendant‘s motion to dismiss. Plaintiffs appealed.
On appeal, the appellate court affirmed in part and reversed and remanded in part. 284 Ill. App. 3d at 513. First, the court reversed the trial court by finding that charging a fee for the waiver of an escrow account is contrary to the plain language and purpose of the Escrow Act. 284 Ill. App. 3d at 510. The court also rejected defendant‘s arguments that the Escrow Act, as construed by the plaintiffs, was preempted by federal
II. ANALYSIS
We begin our analysis with the Escrow Act. In construing the Escrow Act, we must ascertain and give effect to the intent of the legislature. Varelis v. Northwestern Memorial Hospital, 167 Ill. 2d 449, 454 (1995). When possible, the intention of the legislature should be determined from the language of the statute. Nottage v. Jeka, 172 Ill. 2d 386, 392 (1996). Besides examining the language of an act, a court should look to the evil that the legislature sought to remedy or the object it sought to attain in enacting the legislation. Castaneda v. Illinois Human Rights Comm‘n, 132 Ill. 2d 304, 318 (1989). In the present case, we must determine whether the Escrow Act, in light of the purpose for which the legislature passed the Act, prohibits the imposition of an escrow waiver fee when a borrower elects to pledge an interest-bearing time deposit in lieu of establishing an escrow account for the payment of anticipated taxes.
As stated above, section 6 states: “In lieu of the mortgage lender establishing an escrow account or an escrow-like arrangement, a borrower may pledge an interest-bearing time deposit with the mortgage lender in an amount sufficient to secure the payment of anticipated taxes.”
Before passage of the Escrow Act, most standard mortgage loans required the borrower to make monthly deposits into an escrow account to cover future taxes and other anticipated expenditures. Lenders were under no obligation to pay the borrower interest on the funds in the escrow account; thus, lenders received the benefit of the funds deposited by the borrower in the escrow account. In passing the Escrow Act, the legislature sought to give borrowers the benefit of their early payments of taxes by allowing them to pledge interest-bearing time deposits as opposed to having lenders establish escrow accounts.
The legislature clearly wanted the borrower to have the right to pledge an interest-bearing time deposit instead of establishing an escrow account. If a mortgage lender is allowed to charge an escrow waiver fee when a borrower exercises that right, the lender would be able to effectively take away a right given the borrower by the legislature. We do not believe that the legislature would have provided a benefit to borrowers only to give the lender a means to reduce or eliminate this benefit. It is evident that the legislature intended for borrowers electing to pledge an interest-bearing time deposit to retain the proceeds from that deposit. It is also evident that the legislature intended to provide only two options to secure the payment of anticipated taxes. We believe that a lender cannot charge an escrow waiver fee when the borrower pledges an interest-bearing time deposit because such a fee is inconsistent with the language of the statute and the legislative intent to provide a benefit to the borrower.
Having determined that the Escrow Act does not allow defendant to charge an escrow waiver fee should
The supremacy clause of the United States Constitution states that “the Laws of the United States *** shall be the supreme Law of the Land; *** any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.”
When reading the Escrow Act to include a prohibition against escrow waiver fees, defendant claims that the federal Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) (
We must initially determine whether the Escrow Act‘s prohibition of an escrow waiver fee falls under the
Under regulations promulgated pursuant to section 501 of DIDMCA, the Federal Home Loan Bank Board defined the contours of the federal regulatory scheme: “Nothing in this section preempts limitation in state laws on prepayment charges, attorneys fees, late charges or other provisions designed to protect borrowers.”
Our decision is supported by an examination of the purpose behind passage of DIDMCA. In the late 1970s, interest rates increased above the level lenders could legally charge under state usury laws. To spur the home mortgage market and encourage home sales, Congress passed DIDMCA and eliminated interest rate ceilings on first mortgages. Congress’ aim in enacting DIDMCA had “particular emphasis on state usury laws which restrict interest rates to below-market levels and result in artificial disruptions in the supply of home-loan mortgage funds.” (Emphasis in original.) Grunbeck v. Dime Savings Bank of New York, FSB, 74 F.3d 331, 339 (1st Cir. 1996). It is clear that DIDMCA is not meant to preempt situations like the present case. Defendant cannot show that the prohibition of escrow waiver fees falls under the purview of DIDMCA.
Here, our decision is based on the language of section 6 and the purpose behind the passage of the Escrow Act. That defendant may have reasonably believed that the imposition of escrow waiver fees was not prohibited by the Escrow Act is not sufficient to render the statute unconstitutional for vagueness. The fact that a statute might be susceptible of misapplication does not necessarily make it unconstitutional. Stein v. Howlett, 52 Ill. 2d 570, 580 (1972). We do not find section 6 of the Escrow Act to be so indefinite and uncertain that we cannot determine the intention of the legislature. We reject defendant‘s argument that section 6 of the Escrow Act is void for vagueness.
Finally, defendant argues that the prohibition of escrow waiver fees by the appellate court is a legislative act that violates the separation of powers doctrine by reading a prohibition into the statute. It is the function of the judiciary to determine what the law is and to apply statutes to cases. See In re Marriage of Cohn, 93 Ill. 2d 190, 204 (1982); People v. Nicholls, 71 Ill. 2d 166, 179 (1978). Here, we are merely construing section 6 of the Escrow Act and applying it to the present case—there is no violation of the separation of powers doctrine.
Having determined that charging an escrow waiver fee violates section 6 of the Escrow Act, we must next determine whether defendant violated the Fraud Act by
“Unfair methods of competition and unfair or deceptive acts or practices, including but not limited to the use or employment of any deception, fraud, false pretense, false promise, misrepresentation or the concealment, suppression or omission of any material fact, with intent that others rely upon the concealment, suppression or omission of such material fact, *** are hereby declared unlawful whether any person has in fact been misled, deceived or damaged thereby.”
815 ILCS 505/2 (West 1992).
In the present case, we find that defendant‘s action of charging plaintiffs an escrow waiver fee when plaintiffs elected to pledge an interest-bearing time deposit was not intended to deceive or defraud plaintiffs or be unfair to plaintiffs. Further, defendant did not conceal, suppress, or omit any material fact with the intent that plaintiffs would rely on such action. Defendant, in this case, merely made an honest mistake concerning the interpretation of a statute that had yet to be construed. While we have found that defendant‘s action of charging an escrow waiver fee was prohibited under the Escrow Act, we do not believe that the defendant‘s actions in this case violated the Fraud Act. See Lee v. Nationwide Cassel, L.P., 174 Ill. 2d 540, 550-51 (1996).
III. CONCLUSION
For the foregoing reasons, we find that section 6 of the Escrow Act prohibits a lender from charging an escrow waiver fee when the borrower elects to pledge an interest-bearing time deposit in lieu of the lender‘s establishing an escrow account to cover payment of anticipated taxes. Further, prohibiting such a fee is not federally preempted by DIDMCA and is not unconstitutionally vague or a violation of the separation of powers doctrine. Additionally, we find that plaintiffs have failed to state a cause of action under the Fraud Act. We
Affirmed.
JUSTICE HARRISON, concurring in part and dissenting in part:
Contrary to the majority, I believe that plaintiffs stated a cause of action under section 2 of the Consumer Fraud Act (
A section 2-615 motion to dismiss attacks only the legal sufficiency of the complaint. Urbaitis v. Commonwealth Edison, 143 Ill. 2d 458, 475 (1991). When the legal sufficiency of a complaint is challenged by a section 2-615 motion, all well-pleaded facts in the complaint are taken as true, and the reviewing court must determine whether the allegations, when construed in the light most favorable to plaintiff, are sufficient to establish a cause of action upon which relief may be granted. Connick v. Suzuki Motor Co., 174 Ill. 2d 482, 490 (1996). A complaint should not be dismissed for failure to state a cause of action unless it clearly appears that no set of facts can be proved under the pleadings which will entitle the plaintiff to recover. Bryson v. News America Publications, Inc., 174 Ill. 2d 77, 87 (1996).
Under the Consumer Fraud Act, “unfair or deceptive acts or practices” are defined to include the use or employment of any
“misrepresentation or the concealment, suppression or omission of any material fact, with intent that others rely upon the concealment, suppression or omission of such material fact ***.”
815 ILCS 505/2 (West 1992).
In the matter before us, there is no dispute that escrow requirements were an important part of plaintiffs’ mortgage transactions with Norwest Mortgage and were therefore material. Plaintiffs clearly allege that the company misrepresented or concealed, suppressed or omitted those requirements by failing to give notice to plaintiffs, as required by law, that they could avoid escrow without payment of a fee and by supplying plaintiffs with information about escrow accounts that was inconsistent with the law. The company obviously intended consumers such as plaintiffs to rely on its misrepresentations, suppressions, and omissions, and the consumers did so rely. According to the complaint, consumers paid the fee the company demanded even though the fee was illegal and the company had no right to collect it.
To suggest that there was no deception or unfairness under these circumstances, as the majority does, requires a view of honesty and justice I do not share and cannot comprehend. If plaintiffs’ allegations are true, as we must assume them to be, what the company did here was to extract money from consumers by violat-
My colleagues attempt to justify the company‘s behavior on the grounds that the company did not intend to deceive plaintiffs but “merely made an honest mistake.” 179 Ill. 2d at 169. Unlike Lee v. Nationwide Cassel, L.P., 174 Ill. 2d 540 (1996), however, no unsettled principles of law were involved here and no legitimate claim could be made that the defendant‘s conduct was lawful. Under the facts alleged in this case, defendant‘s conduct was clearly improper and illegal.
In any case, there is no “honest mistake” defense to a claim brought under the Consumer Fraud Act. Although the point has never been squarely addressed by our court, the appellate court has consistently and repeatedly held that even innocent or negligent misrepresentations are actionable. See, e.g., Sohaey v. Van Cura, 240 Ill. App. 3d 266, 291 (1992), aff‘d & remanded, 158 Ill. 2d 375 (1994); Smith v. Prime Cable, 276 Ill. App. 3d 843, 856 (1995); Griffin v. Universal Casualty Co., 274 Ill. App. 3d 1056, 1065 (1995); Warren v. LeMay, 142 Ill. App. 3d 550, 566 (1986). Under the Act, the good or bad faith of the defendant is irrelevant. Harkala v. Wildwood Realty, Inc., 200 Ill. App. 3d 447, 453 (1990). Accordingly, an intent to deceive is not necessary to a finding of unfair or deceptive conduct within the meaning of the statute. People ex rel. Hartigan v. Stianos, 131 Ill. App. 3d 575, 578-79 (1985); Warren, 142 Ill. App. 3d at 566. The majority has no basis in the law for holding otherwise.
For the foregoing reasons, I would allow plaintiffs to proceed with their claim under the Consumer Fraud Act. In all other respects I concur.