Lisa Harms HartzlerResearch and analysis by Lisa Harms Hartzler,
Sorling Northrup Attorneys

Credit reporting agency did not violate Fair Credit Reporting Act by disclosing rental applicant’s guilty plea and supervision

In Aldaco v. RentGrow, Inc., 921 F.3d 685 (7th Cir. 2019), the plaintiff applied to rent an apartment and consented to a background check. The background report produced by the defendant reporting agency flagged the plaintiff’s sentence for battery 19 years ago, which violated the landlord’s renter criteria. The landlord refused to rent an apartment to the plaintiff. The plaintiff then sued the defendant for violating the Fair Credit Reporting Act (FCRA) by disclosing her criminal history to the landlord.

The FCRA prohibits reporting agencies from disclosing any arrest record or other adverse item more than seven years old but permits them to report “records of convictions of crimes” no matter how long ago they occurred. In this case, the plaintiff argued that she had not been “convicted” of a crime. Rather, she had received a “deferred judgment.”  When the plaintiff pled guilty, the court sentenced her to six months’ supervision and deferred proceedings while she served that sentence. After the plaintiff complied with the conditions of her supervision, the court dismissed the charge of battery. The plaintiff could have had the battery record expunged but she did not ask the court to do so.

The plaintiff argued in this case that supervision sentence in Illinois did not constitute a conviction under FCRA. The court held that the definition of “conviction” under FCRA was a matter of federal law, not Illinois law, and that federal law included deferred judgments. Her guilty plea and sentence to six months’ supervision thus qualified as a battery “conviction” under FCRA. The defendant reporting agency did not violate that statute by reporting that information to the landlord, even though it was 19 years old.

Furthermore, FCRA requires reporting agencies to “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.”  When a person disputes the accuracy of information contained in his or her file, the agency must conduct a reasonable reinvestigation to determine whether the disputed information is inaccurate. In this case, the report on the plaintiff was inaccurate because it stated the plaintiff received 60 months’ supervision rather than the correct length of six months. However, the plaintiff did not dispute the inaccurate length; she asserted the conviction was not hers. The agency reinvestigated and confirmed the plaintiff’s conviction for battery. The court found that, although the report was inaccurate, the length of the plaintiff’s supervision sentence did not cause the landlord to deny the plaintiff an apartment—it was the conviction alone that violated the landlord’s criteria. Consequently, the plaintiff could not show that she suffered any injury as the result of any inaccurate information. The court affirmed summary judgment in favor of the defendant reporting agency.

Buyer entitled to specific performance under purchase contract

Lobo IV, LLC v. V Land Chicago Canal, LLC, 2019 IL App (1st) 170955, involved a tax-deferred exchange of property in which Plaintiff expected to purchase from Defendant two commercial properties located in Chicago and Bloomingdale for $12 million. The contract provided that if an appraisal obtained by plaintiff’s lender came in higher or lower, Plaintiff could cancel the deal or adjust the purchase price to the appraisal amount. When the appraisal report valued the properties $1.7 million lower than the contract price, Plaintiff chose to adjust the purchase price and proceed to closing, even though its lender had offered terms that were less favorable than those set out in the contract’s financing contingency clause. Defendant declined to convey the properties. Plaintiff had already conveyed its property to Defendant and the time to complete the tax-deferred exchange was expiring. Litigation ensued and continued for the next 13 years.

Plaintiff sued defendant for specific performance of the contract, among other claims. To state a cause of action for specific performance, a plaintiff must allege (1) the existence of a valid, binding, and enforceable contract; (2) compliance by the plaintiff with the terms of the contract or proof that the plaintiff was ready, willing, and able to perform the terms of the contract; and (3) the failure or refusal of the defendant to perform its part of the contract. The contract must also be so unambiguous in its terms that a court can require the specific thing contracted for to be done.

In this case, defendant asserted that plaintiff did not state a cause of action for specific performance because it had not obtained financing in compliance with the terms provided in the contract. The court disagreed, saying:

A mortgage contingency clause is considered to be a condition precedent and where a contract contains a condition precedent, the contract is not enforceable or effective until the condition is performed or the contingency occurs. However, a party to a contract may waive performance of a condition precedent where the condition precedent is intended for the benefit of the waiving party. Mortgage contingency clauses have been interpreted to be for the benefit of the purchaser.

Consequently, the court held that plaintiff was entitled to waive the financing terms set out in the contract because they were solely for its benefit. Defendant was a sophisticated seller and took a chance on the appraisal’s valuation of the properties. It could have negotiated a mechanism to challenge the validity of the appraisal or conditioned adjustment of the purchase price on its acceptance. Since it did neither, defendant was bound to complete the sale. The court granted plaintiff specific performance (although other substantive issues raised in this case complicated the ultimate outcome in favor of plaintiff).

First-time buyers allowed to proceed against real estate agent for negligent representation

In Calhoun v. I‑20 Team Real Estate, LLC, No. 12‑18‑00224‑CV (Ct. App. Texas, Feb. 6, 2019), the plaintiffs relocating from Oklahoma to Texas hired the defendant real estate agent to assist them in purchasing their first home. Defendant showed plaintiffs a property listed by another agency and provided them with a copy of sellers’ disclosure notice. The notice had checked “yes” by “previous flooding into the structure.”  It did not, however provide an explanation required by law as to the source of the water that caused previous flooding into the structure. No other boxes were checked regarding improper drainage, flood insurance, or location in flood zone or floodway. Plaintiffs hired an inspector, who noticed water marks in a crawlspace near the water heater and deduced from the disclosure notice that they were caused by a leaking water pipe. Plaintiffs bought the house and shortly thereafter experienced flooding during heavy rainfall. They discovered that the house had inadequate drainage to prevent water from entering during normal rainfall and that flooding had occurred on previous occasions.

Plaintiffs sued defendant agent and her agency for negligently failing to advise them that the sellers’ disclosure notice was inadequate and deficient. Negligence claims require the existence of a legal duty, a breach of that duty, and damages proximately caused by the breach. There are two elements of proximate cause:  “cause in fact,” which means that the act or omission was a substantial factor in bringing about the injury, and without it, the harm would not have occurred, and “foreseeability,” which requires that the actor, as a person of ordinary intelligence, would have anticipated the danger that his negligent act created for others.

In this case, the court found that the defendants had a legal duty to use reasonable care and diligence in representing the plaintiffs in the purchase of the property and that the complaint adequately alleged defendants breached that duty by failing to alert the plaintiffs to the lack of an explanation as to previous flooding in the sellers’ disclosure notice. The court also held that the plaintiffs adequately alleged proximate cause. First, they asserted that the defendants’ acts or omissions were a substantial factor in bringing about their damages because they alleged they would have chosen not to purchase the house had they been provided an explanation for the flooding. Second, they alleged that defendants should have reasonably anticipated that their failure to alert the first-time buyers, who had hired defendants to represent and assist them, would result in the plaintiffs buying a home with an unknown and unanticipated defect that caused the previous flooding.

The appellate court reversed the trial court’s dismissal of the plaintiffs’ complaint and remanded the case for further proceedings.

Property owners who built barn in violation of county ordinance had no cause of action against village issuing building permit

In Mosier v. Village of Holiday Hills, 2019 IL App (2d) 180681, the plaintiffs applied for and received from the defendant village a building permit to construct a metal pole barn on the condition that they install a “truss load.”  Five years later, McHenry County sued the plaintiffs for building a structure in a regulatory flood-prone area without a storm water management permit, causing plaintiffs to expend thousands of dollars defending the suit. The plaintiffs then sued the village for breach of contract and misrepresentation in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. The alleged the village official issuing the permit knew the plaintiffs needed a permit from the county and affirmatively misrepresented that all they needed to do was include a truss load in the barn. The court dismissed both counts for failure to state a cause of action.

First, the court held that applying for and receiving a building permit did not create a contract between the plaintiffs and the village. A village issues a building permit under its police powers as a governmental function and pursuant to its ordinances. “The issuance of a building permit is not a private matter between contracting parties, as a building permit cannot be granted in violation of a zoning ordinance.”  Consequently, principles of contract do not apply. Rather, a building permit is like a license to do certain things within a municipality upon which restrictions can be imposed and which can be revoked.

Second, the Consumer Fraud and Deceptive Business Practices Act, which protects consumers, borrowers, and business persons against fraud, unfair competition, and other unfair or deceptive business practices, requires to state a claim (1) a deceptive act or practice by the defendant; (2) the defendant’s intent that the plaintiff rely on the deception; and (3) the occurrence of the deception during a course of conduct involving trade or commerce. The term “trade or commerce” means the “advertising, offering for sale, sale, or distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value wherever situated, and shall include any trade or commerce directly or indirectly affecting the people of this State.”  The plaintiffs argued that the issuing of building permits directly or indirectly affected the people of Illinois but the appellate court did not buy that argument. Without discussing the other required elements to state a claim, it held the statute was inapplicable to a transaction involving a municipality’s regulatory and legal powers.

Real estate broker’s misrepresentation as to commercial zoning was potential violation of Real Estate License Act and Consumer Fraud and Deceptive Business Practices Act

In Edson v. Fogarty, 2019 IL App (1st) 181135, the defendant real estate broker listed space in the basement of a condominium building in Chicago. A previous use of the space was as a Stop & Shop convenience grocery and old MLS listings reflected a “B1” zoning. The defendant reviewed a zoning map, but the map’s designation was for the whole residential building, not the basement commercial space. Consequently, the defendant listed the space as “perfect for grocery, medical clinic, fitness center, restaurant/bar, office” and designated the zoning as “B1‑3,” a non-existent category. The plaintiff viewed the property and purchased it with a plan to lease it to a grocer, which the defendant said would be a great use.

After closing, the plaintiff discovered the space was zoned DR‑10, a residential use classification that could only be changed if the building condominium association approved. It did not. The plaintiff stopped paying his condominium assessments and lost title after a judgment of foreclosure. He sued defendant and his employer, alleging fraud, negligent misrepresentation, and violations of the Consumer Fraud and Deceptive Business Practices Act and the Real Estate Licensing Act.

The appellate court first determined that neither of the two statutes require reasonable reliance by the plaintiff on the alleged misrepresentations made by defendant. Under RELA, “licensees shall treat all customers honestly and shall not negligently or knowingly give them false information.”  Actual reliance by the plaintiff is not a requirement to state a cause of action under that statute. Similarly, it is not required under the consumer fraud statute.

The defendant also asserted that even if reliance were a required element, misrepresentations about zoning involve statements of law on which the plaintiff could not rely. Under some judicial precedent, all parties have an equal ability to know and interpret zoning requirements, since existing zoning is a matter of pubic record. A plaintiff, therefore, cannot reasonably rely on contrary representations by a defendant.

Other cases, however, turn on “whether the seller’s misrepresentations could have been discovered merely by reviewing applicable zoning or building ordinances.”  The appellate court found that the word “merely” was key. In this case, the applicable zoning was not discoverable by merely looking at the zoning map, as the defendant himself testified. Further, the defendant listed “grocery store” as a suggested commercial use and told the plaintiff that the space “would be a great grocery.”  The court concluded that the defendant’s misrepresentations were statements of fact, not law, on which the plaintiff could reasonably rely. The court reversed the trial court’s dismissal of the suit and remanded it for further proceedings.

Corporations may be persons under the Gender Violence Act

In Gasic v. Marquette Management, Inc., 2019 IL App (3d) 170756, the defendant corporation (“Marquette”) managed the apartment complex in which the plaintiff resided. It employed a janitor who allegedly entered the plaintiff’s apartment and “engaged in unwanted and inappropriate sexual contact with plaintiff that amounted to assault and battery.”  Plaintiff sued the janitor and Marquette. Count III of her complaint alleged a statutory cause of action against Marquette pursuant to Section 10 of the Illinois Gender Violence Act (“Act”). Section 10 empowers victims of gender-related violence to file civil actions against “a person or persons perpetrating that gender-related violence.”  It defines “perpetrating” as “either personally committing the gender-related violence or personally encouraging or assisting the act or acts of gender-related violence.”

The plaintiff asserted (1) that Marquette owed her a duty to protect her from the risk of assault by employees with known sexual deviant propensities; (2) that Marquette knew or should have known that the janitor was the subject of many complaints for sexual harassment, unwanted touching of residents, and obnoxious behavior during work hours; and (3) that Marquette perpetrated gender-related violence when it encouraged or assisted the janitor by failing to supervise and monitor him.

The trial court dismissed Count III on the ground that the Act did not apply to corporate conduct. It concluded that artificial entities are not “persons” who can “personally” commit, encourage, or assist gender-related violence under the Act. The court granted the plaintiff an “interlocutory appeal” allowing an appeal on this one issue before all of the issues raised at the trial level had been decided. It certified the following question to the appellate court: “Can an entity be considered a ‘person’ committing acts ‘personally’ for purposes of liability under the Gender Violence Act?”

The appellate court noted the lack of any judicial precedent on this precise question in Illinois. It found, however, that nationally courts have come to recognize the high degree of parity that corporations share with natural persons. “The rapidly expanding concept of corporate personhood in existing case law has grown to blur the line between natural persons and corporations in the legal context.”  The court cited the 2010 U.S. Supreme Court decision of Citizens United v. Federal Election Commission, which held that the federal government may not suppress political speech on the basis of the speaker’s corporate identity, thus giving corporations first amendment protections. The appellate court also looked to other high court cases giving corporations a fourth amendment right against unreasonable searches and a limited right to privacy, a fifth amendment right against double jeopardy and takings, and a sixth amendment right to trial by jury and to counsel. Corporations are also considered “persons” for purposes of equal protection and due process guarantees.

Considering the evolution of corporate personhood, the court concluded that “under some circumstances, a legal entity, such as a corporation, can act “personally” for purposes of giving rise to civil liability under the [Gender Violence] Act.”  The court was careful to narrowly limit its holding as it must when answering a hypothetical question presented in an interlocutory appeal. The court’s answer negated the trial court’s reasoning for dismissing Count III of the plaintiff’s complaint but remanded the case for further proceedings to determine whether the plaintiff had submitted a legally sufficient complaint under the facts of her case.