7th Circuit Affirms Dismissal of Consumer Fraud Claims Against Wachovia


While lawsuits have become increasingly common in today’s society, they have grown no less costly. Because of the cost and time consuming nature of lawsuits, plaintiffs should be advised to thoroughly consider every line of their contracts, as well as the law, before taking a person or company to court. In a recent case handled by the Seventh Circuit Court of Appeals, Martha Schilke either failed to thoroughly read her mortgage contract, or she failed to fully understand it. Either way, the result was much time spent in court that could have been avoided.

Schilke purchased a town house in 2006 using a mortgage from Wachovia Mortgage, FSB. One of the conditions of her mortgage was that Schilke buy and maintain insurance on her property. If, at any point, she failed to do so, the contract stipulated that Wachovia had the right to purchase insurance on her behalf and charge her for the premium. The contract even went so far as to warn Schilke that, due to fewer insurance options, insurance coverage bought by them would likely be at a much higher premium and less coverage than insurance Schilke could buy on her own.

The contract further stated that “[i]f at any time during the life of the loan, a policy is cancelled or replaced or an insurance agent is substituted, we must receive written evidence of the insurance and written evidence of the substitution of the insurance agent. Written evidence of insurance is defined as: a copy of the reinstatement notice for the cancelled policy or a copy of the replacement policy. … If we do not receive such evidence prior to the termination date of the previous coverage, we may at our sole option, obtain an insurance policy for our benefit only, which would not protect your interest in the property or the contents. We would charge the premium due in under such a policy to your loan and the loan payment would increase accordingly.”

In January of 2008, Schilke purchased insurance for her property. In May of that same year, Wachovia sent her a notice that her policy had ended on April 8. The letter requested that Schilke provide proof of insurance within 14 days. She never replied. Wachovia sent Schilke another letter in June, once again requesting proof of insurance and notifying her that it had acquired temporary insurance coverage through American Security Insurance (ASI). Enclosed with the letter was an “Illinois Notice of Placement Insurance” in which Wachovia described the terms of the temporary insurance coverage and informed Schilke that she was responsible for the cost. The letter further stated that, if Schilke could provide proof of insurance, Wachovia would cancel the temporary insurance coverage and refund any premiums paid by Schilke. It also stated that, in the event that Schilke failed to provide proof of insurance in the next 30 days, Wachovia would cancel the temporary insurance and replace it with a 12-month insurance policy, for which Schilke would be charged.

In July 2008, Wachovia wrote to Schilke to inform her that it had purchased a 12-month insurance policy on her mortgaged property and of the cost of that coverage. One year later, Schilke filed a class action lawsuit, on behalf of herself and others similarly situated, against Wachovia and ASI for allegedly engaging in deceptive practices by failing to disclose that Wachovia was receiving “kickbacks” from ASI.

Wachovia and ASI moved to dismiss the motion and the district court granted it.
Schilke then sought leave to file an amended complaint in which she added claims for breach of contract against both Wachovia and ASI and “clarified” that her claim under the Consumer Fraud Act was based on allegations that Wachovia’s conduct was both “deceptive” and “unfair” as defined by the Act. The district court rejected the proposed amendment, concluding that Schilke’s “clarification” of her amendment did not change the fact that she did not have a claim under the Act.

Schilke then submitted another amended complaint. In this version, she proposed to add Assurant, Inc., ASI’s parent company, as a defendant. She also proposed to add claims for conspiracy, aiding and abetting, acting “in concert”, and “intentional interference”. The judge denied leave to amend the complaint, stating that none of the changes significantly changed the allegations in the complaint. Schilke appealed and the case moved to the Seventh Circuit Court of Appeals.

As to Schilke’s claims under the Consumer Fraud Act, the Act prohibits any “unfair” or “deceptive” business practices to be used by a person or entity in order to gain an unfair advantage. The Act defines these terms as including “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”. The court found that, due to the contract provided by Wachovia, as well as its notices and correspondence to Schilke, the company had provided sufficient evidence that it had not violated the Consumer Fraud Act.

Schilke tried to claim that, even if Wachovia’s business practices were not deceptive, they were unfair because they “coerced” her into buying insurance through them. She backed this statement by saying that, had she refused to pay for the insurance through Wachovia, or failed to make a payment on her mortgage, Wachovia would have cancelled her mortgage, therefore she was “coerced” into buying the more expensive insurance. The court, however, pointed out that Wachovia had provided plenty of chances for Schilke to purchase cheaper insurance and, since having insurance was always a part of the legal contract, the court denied these allegations.

Because Wachovia received a commission from ASI for purchasing insurance on one of its properties, Schilke called it a “kickback” and claimed that it was unlawful. However, a “kickback” is defined as a bribe or payment which might be used to divide loyalties. This was never the case because Wachovia was not acting on Schilke’s behalf. Instead, the bank was merely acting to protect its own interests in the property it had purchased, for which Schilke was paying them back. Such a commission is fully within the limits of the law.

The Seventh Circuit Court of Appeals therefore upheld the ruling of the district court and dismissed the case.

Our Naperville, Illinois consumer rights private attorneys handle individual and class action predatory lending, unfair debt collection, lemon law and other consumer fraud cases that government agencies and public interest law firms such as the Illinois Attorney General may not pursue. Class action lawsuits our law firm has been involved in or spear-headed have led to substantial awards totaling over a million dollars to organizations including the National Association of Consumer Advocates, the National Consumer Law Center, and local law school consumer programs. The Chicago consumer lawyers at Lubin Austermuehle are proud of our achievements in assisting national and local consumer rights organizations obtain the funds needed to ensure that consumers are protected and informed of their rights. By standing up to consumer fraud and consumer rip-offs, and in the right case filing consumer protection lawsuits and class-actions you too can help ensure that other consumers’ rights are protected from consumer rip-offs and unscrupulous or dishonest practices.

Our Joliet and Waukegan consumer attorneys provide assistance in fair debt collection, consumer fraud and consumer rights cases including in Illinois and throughout the country. You can see a description of the some of the many individual and class-action consumer cases our Chicago consumer lawyers have handled by clicking here. You can contact one of our Naperville consumer protection attorneys who can assist in consumer fraud, consumer rip-off, lemon law, unfair debt collection, predatory lending, wage claims, unpaid overtime and other consumer, or consumer class action cases by filling out the contact form at the side of this blog.

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