Commercial Banking, Collections, and Bankruptcy

In instant Chapter 11 bankruptcy proceeding, Bankruptcy Ct. did not err in subordinating creditor’s reclamation claim under section 546(c) of Bankruptcy Code, seeking return of its appliances that were sold/delivered to insolvent retail debtor within 45 days of debtor filing for Chapter 11 bankruptcy petition. Record showed that prior to debtor filing for bankruptcy protection, bank had extended operating financing under credit agreement that treated bank’s cash advances to debtor as secured by first-priority floating lien on existing and after-acquired inventory, and that prior to creditor serving debtor with instant reclamation claim, debtor sought and obtained from Bankruptcy Ct. debtor-in-possession (DIP) financing from bank that gave instant bank priming, first-priority floating lien on debtor’s existing and after-acquired inventory and its proceeds. Under Bankruptcy Abuse Prevention and Consumer Protection Act, seller’s right to reclaim goods is subject to prior rights of security interest in said such goods or proceeds thereof, and bank, through DIP agreement, had priority over inventory at issue in instant reclamation claim.

Dist. Ct. did not err in granting defendant-debt collector’s motion for judgment on pleadings in plaintiff-debtor’s action alleging that defendant’s dunning letter, which listed both “original” and “current” creditors, was misleading under Fair Debt Collector’s Practices Act (FDCPA). While plaintiff argued that dunning letter failed to clearly and effectively identify name of creditor to whom debt was owed, defendant’s letter expressly named one entity as current creditor, which was sufficient under FDCPA. Also, Ct. of Appeals found that unsophisticated consumer would understand that plaintiff’s debt had been purchased by “current” creditor and rejected contention that letter should have spelled out that current creditor had purchased debt from original creditor.

Dist. Ct. erred in denying defendant-bankruptcy debtor’s request to exempt 85 percent of $24,000 in unused vacation time from his creditor’s claims, where Dist. Ct. found that unpaid wages are not exempt in bankruptcy. Illinois law permits creditors to reach 15 percent of unpaid wages, but forbids debt collection from other 85 percent of unpaid wages, and 11 USC section 522(b)(2) and (3)(A) apply state-law exemption rules to bankruptcy proceedings. Accordingly, because 85 percent of unpaid wages are exempt from creditors’ claims in Illinois, and because vacation pay is form of wages, Dist. Ct.’s decision to not exempt 85 percent of debtor’s unpaid vacation pay must be reversed.

Dist. Ct. did not err in granting defendant’s motion to dismiss plaintiff-customer’s class action, alleging that defendant violated Illinois Consumer Fraud and Deceptive Practices (ICFDPA), Act by selling plaintiff half-empty box of chocolates, where plaintiff asserted that defendant’s box of chocolates contained needless empty space that misled consumers. While plaintiff alleged that “slack-fill” or empty space in defendant’s otherwise opaque box was both deceptive and unfair, plaintiff failed to allege that she incurred any actual damages, since she failed to claim either that candy contained in defendant’s boxes was defective or that she could have acquired said candy at better price. Also, plaintiff could not pursue unlawful enrichment claim where her ICFDPA failed, since, under Illinois law, there is no stand-alone claim for unjust enrichment.

Record failed to contain sufficient evidence to support jury’s $3 million punitive damages award in claim under Ill. Consumer Fraud and Deceptive Practices Act, alleging that defendant made several attempts to collect on debt that had been discharged in plaintiff’s Chapter 13 bankruptcy petition. Record showed that: (1) defendant sent plaintiff several notices that made false claims that plaintiff owed defendant money and threatened plaintiff with foreclosure of her home; and (2) when plaintiff challenged defendant’s claims, defendant failed to explain why it believed that plaintiff owed it money. While defendant asserted that any punitive damages award was improper, since any errors were made by single employee, record showed that defendant essentially ratified actions of said employee, where it continued to defend actions of said employee through its course of litigation, and where no one at defendant took any steps to investigate how employee’s erroneous actions occurred or how they could have been prevented. However, $3 million punitive damages figure set by jury was excessive, and Ct. reduced said figure to $582,000, which constituted 1 to 1 ratio with compensatory damages award set by jury.

Dist Ct. and Bankruptcy Ct. erred in treating fines that debtors incurred in either illegally parking or running red lights after Bankruptcy Ct. had confirmed debtors’ Chapter 13 payment plans as not administrative expenses that could be paid from debtors’ bankruptcy estate, where said courts believed that paying said fines did not promote debtors’ interests. Moreover, effect of said courts’ orders meant that City of Chicago could not seize, tow or immobilize debtors’ cars in order to collect on said fines due to automatic stay of 11 USC section 362. However, Ct. of Appeals found that Bankruptcy Code could not be read to enlist judiciary’s aid in permitting debtors to violate law. As such, Ct. found that said fines should be treated as administrative costs that must be paid promptly and in full.