Chapter 4 Lender Liability Where FTC Holder Notice PL94Ch04

8/4/2019 Chapter 4 Lender Liability Where FTC Holder Notice PL94Ch04

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Chapter 4 Lender Liability Where FTC Holder NoticeImproperly Omitted

4.1 Demand LetterDate

PresidentLaSalle Northwest National Bank4747 West Irving Park RoadChicago, IL 60641

Re: Claim by Georgia Brown, 1720 N. Main, Chicago, IL 60639, against LaSalle NorthwestNational Bank

Dear Sir or Madame:

On February 14, 1991, LaSalle Northwest unit financed Mrs. Brown's purchase of a 1989Toyota from a used car dealer known as Lake Automotive. Mrs. Brown executed a $13,000 noteat the place of business of Lake Automotive on a printed form that had been supplied to it by

LaSalle Northwest, and without visiting LaSalle's offices. LaSalle Northwest delivered a checkto the dealer, which Mrs. Brown endorsed to the dealer.

Although any note which LaSalle Northwest furnishes to a seller of goods for use inconsumer transactions is required by Federal Trade Commission regulations (16 C.F.R. part 433)to contain a statement that any holder was subject to any claims and defenses that the consumerhas against the seller, this particular note did not.

A claim was recently asserted against Mrs. Brown to the effect that Lake Automotive didnot have good title to the vehicle sold to her. See enclosed letter [not reprinted infra]. As aresult of this claim, Mrs. Brown has incurred legal fees and sustained mental anguish. If theletter is accurate, Lake Automotive breached its warranty of title and against infringement under2-312 of the Uniform Commercial Code, entitling Mrs. Brown to rescind both the purchase and

the financing and recover damages. (Mrs. Brown has paid LaSalle Northwest more than $6,200on the note.) Of course, Lake Automotive is now defunct.

The existence of a form document which fails to comply with 16 C.F.R. part 433indicates a pattern of similar violations. Before taking any action, we wish to give LaSalleNorthwest an opportunity to provide any explanation for the distribution of the forms. Pleasefurnish us with any explanation for the form within ten days of the date of this letter. Anyexplanation should include (i) examples of financing instruments which LaSalle Northwestfurnishes to car dealers that do comply with 16 C.F.R. part 433, (ii) the identities of all sellers ofgoods and services to which LaSalle Northwest furnished forms that do not comply with 16C.F.R. part 433 and (iii) the number and status of the transactions that were written on theimproper forms.

Mrs. Brown will make no further payments on her account until this matter is resolved.Sincerely yours,

Attorney for Plaintiffcc: Georgia Brown


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4.2 Plaintiff's Motion for Leave to File Amended Complaint

IN THE UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

GEORGIA BROWN and DEAN MARTIN, JR.

[vs.]

LASALLE NORTHWEST NATIONAL BANK

No 92 C 8392

PLAINTIFF'S MOTION TO AMEND THE JUDGMENTTO PERMIT HER LEAVE TO FILE AN AMENDED COMPLAINT

Plaintiff, Georgia Brown ("Ms. Brown"), requests, pursuant to Fed.R.Civ.P. 59 that this

Court amend the judgment which was entered on March 25, 1993, to permit her leave to file an

amended complaint, and allow her to file the attached amended complaint instanter. Ms. Brown

further requests that the Court delete the portion of its order striking the class allegations.

In support of this motion, plaintiff states:

a. On December 28, 1992, Ms. Brown filed a two count complaint against LaSalle

Northwest National Bank ("LaSalle"), alleging that LaSalle violated of RICO (Count I) and the

Illinois Consumer Fraud Act (Count II) when it issued loans to consumers on forms which did

not include a notice, required by Federal Trade Commission regulations, subjecting LaSalle to

claims and defenses the consumers had against the car dealers who referred the consumers to

LaSalle.

b. On March 25, 1993, this Court entered a judgment dismissing Count I of plaintiff's

complaint with prejudice. The Court's Memorandum Opinion found that plaintiff had alleged a

RICO violation but with insufficient specificity. The Court stated that the sole reason for the

dismissal was that the complaint failed to satisfy the Fed.R.Civ.P. 9(b) pleading requirements

because it did not contain any specific allegations as to transactions with other customers, other

automobile dealers or other insurance agents.


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c. Plaintiff believed and continues to believe that it should not be necessary to plead

specific facts about other transactions in a case such as this one, which involves a standard form

contract which was clearly used in multiple consumer transactions. Imposing such a requirement

would make it impossible to allege a RICO violation in many cases clearly within the intended

scope of the statute simply because no single victim knows the name of other victims. Most

consumer and security fraud cases are of this nature.

d. Nevertheless, plaintiff has prepared an amended complaint which contains facts about

four other consumer transactions, involving four different automobile dealers (Exhibit A), in

accordance with this Court's position on the pleading requirements.

e. The geographic and temporal dispersal of the consumers and dealers plaintiff has

identified in her amended complaint indicates that LaSalle has arrangements with a large number

of auto dealers and State Farm agents. Plaintiff should also be able to obtain facts concerning

additional transactions through discovery. The fact that at least five car dealers were involved

shows that plaintiff's transaction was not isolated.

f. The usual practice when a complaint is dismissed under Rule 9(b) for failure to plead

specific facts, is to allow the plaintiff the opportunity to file an amended complaint setting forth

additional facts. 2A J. Moore & J. Lucas, Moore's Fed. Practice 9.03 at 9-34 (2d Ed. 1986);

Luce v. Edelstein, 802 F.2d 49, 56 (2d Cir. 1986). Leave to amend should be granted unless the

court determines that the allegations of other facts consistent with the challenged pleading could

not possibly cure the deficiency. Ray v. Karris, 780 F.2d 636, 646 (7th Cir. 1985); Schreiber v.

Serv-Well, 806 F.2d 1393, 1401 (9th Cir. 1986) (district court erred in dismissing RICO count

with prejudice for failure to plead sufficient facts). Plaintiff should therefore be given the

opportunity to file an amended complaint in this case.

g. The Court struck the class allegations, on its own motion, for the stated reason that

Ms. Brown had not yet filed a motion for class certification showing the prerequisites of Rule 23

had been met. However, Ms. Brown had propounded discovery seeking information that would

show that the requirements for class certification had been met. The discovery requests are


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attached as Exhibit B [not reprinted infra]. Ms. Brown also conducted an investigation which

revealed the existence of other potential class members, including those described in the

amended complaint.

h. Ms. Brown is entitled to obtain discovery before having to show that the requirements

for class certification are met. Walker v. World Tire Co., 563 F.2d 918, 921 (8th Cir. 1977) ("the

parties must be afforded the opportunity to discover and present documentary evidence on the

class issue");Dillon v. Bay City Constr. Co., 512 F.2d 801, 804 (5th Cir. 1975) ("the plaintiffs

were entitled to discovery" on class issues);Zakorik v. Cornell University, 98 F.R.D. 27

(N.D.N.Y. 1983) ("discovery is often necessary before plaintiffs can properly satisfy the

requirements of Fed.R.Civ.P. 23(a)"). "To pronounce finally, prior to allowing discovery, the

non-existence of a class or set of sub-classes, when their existence may depend on information

wholly within defendant's ken, seems precipitate and contrary to the pragmatic spirit of Rule 23."

McCray v. Standard Oil Co., 76 F.R.D. 490, 500 (N.D.Ill. 1976); accord, Yaffe v. Powers, 454

F.2d 1362, 1367 (1st Cir. 1972). Plaintiff's class allegations comply with notice pleading

requirements, and the allegations concerning other car dealers and other transactions in the

amended complaint indicate that discovery is likely to substantiate the existence of a class of

other consumers similarly situated.

WHEREFORE, the plaintiff requests that this Court amend the judgment which was

entered on March 25, 1992 to allow the plaintiff leave to file an amended complaint, allow her to

file the attached amended complaint instanter, and delete the portion of its order striking the class

allegations.

Respectfully submitted,

Attorney for Plaintiff


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4.3 Amended Complaint

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION


[vs.]


No 92 C 8392

Judge William T. Hart

SECOND AMENDED COMPLAINT

MATTERS COMMON TO MULTIPLE COUNTS

INTRODUCTION

1. This action is brought by two consumers to secure redress for an unfair, deceptive and

unlawful trade practice perpetrated by defendant on plaintiffs and, it is believed, numerous other

persons, generally poor and unsophisticated. Defendant maintained continuous business

relationships with automobile dealers who directly or indirectly referred customers to defendant

for financing. Accordingly, under Federal Trade Commission regulations, defendant is subject to

claims and defenses which the consumer has against the provider of goods and services.

Defendant devised a scheme to deceive and coerce borrowers into making payment to it

notwithstanding the nonreceipt of the agreed-upon consideration from the dealer.

2. In this action, plaintiffs allege that defendant's practices violated the Racketeer

Influenced and Corrupt Organizations Act, 18 U.S.C. 1961 et seq., and the Illinois Consumer

Fraud and Deceptive Business Practices Act, Ill.Rev.Stats., ch. 121-1/2, par. 261 et seq.

Plaintiffs seek compensatory, treble and punitive damages, as well as declaratory and injunctive

relief.


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JURISDICTION AND VENUE

3. Jurisdiction over Count I of this action exists under 28 U.S.C. 1331 and 18 U.S.C.

1964. Jurisdiction over Count II exists under 28 U.S.C. 1367. Venue in this District is proper,

as the claim arose in this District.

PARTIES

4. Georgia Brown is an individual who resides at 1720 N. Menard, Chicago, Illinois

60639.

5. Dean Martin, Jr. is an individual who resides at 7600 S. Stewart, Apt. 101, Chicago, IL

60620.

6. LaSalle Northwest National Bank ("LaSalle") is a national bank with its principal place

of business located at 4747 W. Irving Park Road, Chicago, Illinois 60641.

7. LaSalle is part of a corporate group including LaSalle National Bank, LaSalle Bank

Lake View, and other entities. All of these entities are owned by ABN AMRO North America,

Inc., which is turn owned by a Netherlands corporation. The group is engaged in the provision of

a variety of financial services in the Chicago area.

8. The activities of LaSalle and the corporate group of which it is a part affect interstate

commerce, in that:

a. The funds lent by LaSalle and the other members of the group are raised in part

from residents of states other than Illinois.

b. LaSalle makes loans in states other than Illinois.

c. The profits derived by LaSalle, including profits from the lending activities at

issue here, are ultimately transmitted to its Netherlands parent.

d. The automobiles financed by LaSalle are produced in states other than Illinois.

FTC REGULATION ABROGATING HOLDER IN DUE COURSE DOCTRINE

9. In 1976, the Federal Trade Commission promulgated a regulation, 16 C.F.R. part 433,

intended to address the problem of consumer liability to financial institutions which finance the

purchase of defective goods. As explained in the FTC's Staff Guidelines on Trade Regulation


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Rule Concerning Preservation of Consumers' Claims and Defenses, the purpose of the regulation

was to make it impossible "for a seller to arrange credit terms for buyers which separate the

consumer's legal duty to pay from the seller's legal duty to keep his promises."

10. The regulation, 16 C.F.R. 433.2(b), requires inclusion of a notice in contracts

evidencing a consumer's duty to pay where a "creditor" makes a cash advance to a consumer

which the consumer applies, "in whole or substantial part, to a purchase of goods or services

from a seller who (1) refers consumers to the creditor or (2) is affiliated with the creditor by

common control, contract, or business arrangement." (16 C.F.R. 433.1(d))

11. The FTC regulation defines "contract" to include "[a]ny oral or written agreement,

formal or informal, between a creditor and a seller, which contemplates or provides for

cooperative or concerted activity in connection with the sale of goods or services to consumers or

the financing thereof." (16 C.F.R. 433.1(f)) "Business arrangement" is defined to include any

"understanding, procedure, course of dealing, or arrangement, formal or informal, between a

creditor and a seller, in connection with the sale of goods or services to consumers or the

financing thereof." (16 C.F.R. 433.1(g)) A "creditor" is defined as any "person who, in the

ordinary course of business, lends purchase money or finances the sale of goods or services to

consumers on a deferred payment basis." (16 C.F.R. 433.1)

SCHEME COMPLAINED OF

12. LaSalle and certain State Farm insurance agents entered into agreements or

understandings, which are referred to in a LaSalle's 1990 Community Reinvestment Act

Performance Evaluation (attached asExhibit A, p. 4) [not reprinted infra]. The terms of these

arrangements included the following:

a. State Farm agents would arrange with automobile dealers to obtain referrals of

persons desirous of financing.

b. State Farm agents would arrange with LaSalle to procure financing for these

persons.


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c. LaSalle would prepare printed forms of note which did not contain the notice

required by 16 C.F.R. part 433 and distribute these for use by the State Farm

agents and/or the automobile dealers.

d. LaSalle required and directed that its form of note be used in connection with any

transactions with consumers referred in this manner, and would not accept notes

which contained the notice required by 16 C.F.R. part 433.

e. Neither LaSalle nor any of the participants in the transaction would inform the

consumer of the matters required to be disclosed to the consumer by 16 C.F.R.

part 433.

13. LaSalle planned to disclaim any responsibility for claims or disputes between the

consumers and the automobile dealers on the theory that the business was referred by the State

Farm agent and not the dealer.

14. LaSalle and the State Farm agents would not disclose to the consumer that the

transaction was structured in a manner calculated to allow LaSalle to contend that it was not

responsible for claims or disputes between the consumer and the automobile dealer.

15. In fact, the State Farm agent is the agent of LaSalle, and is authorized to (i) disburse

loan proceeds by issuing "drafts" (instruments) for LaSalle, (ii) receive credit information about

potential LaSalle borrowers, and (iii) prepare loan documents (notes and Truth in Lending

disclosures) on behalf of LaSalle. Therefore, the automobile dealer (the "seller" within the

meaning of 16 C.F.R. part 433) when referring consumers to a State Farm agent, is referring

consumers to LaSalle (the "creditor" within the meaning of 16 C.F.R. part 433).

16. LaSalle supplied the State Farm agents with loan "packages" containing forms to be

used in LaSalle transactions, including credit applications and loan forms.Exhibit B is an

example of such a package.

17. Because of the status of the State Farm agent, as agent for LaSalle, the existence of

the referral arrangements between the State Farm agent and the automobile dealer, on the one


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hand, and LaSalle and the State Farm agent, on the other, constitutes an affiliation between the

automobile dealer and LaSalle by "contract" or "business arrangement." (16 C.F.R. 433.1(d))

18. LaSalle's financing of automobile purchasers referred by automobile dealers through

State Farm agents was therefore subject to the FTC holder in due course regulation. There was

an understanding and arrangement that automobile dealers would refer consumers for financing

in such a manner that the consumers would receive financing from LaSalle. Such understandings

and arrangements trigger applicability of the FTC rule.

19. LaSalle intentionally supplied State Farm agents and/or automobile dealers with form

notes which omitted the notice required by 16 C.F.R. part 433.Exhibit Cis an example of the

form LaSalle supplied. It was the policy and practice of LaSalle to omit the notice. LaSalle

supplied all of the agents with LaSalle loan applications and forms to keep at their offices.

20. LaSalle intended, by supplying the State Farm agents and automobile dealers with

such notes, to:

a. Cause to be concealed from consumers notice of their rights under 16 C.F.R. part

433.

b. Collect money from consumers by representing to them that they had to pay

LaSalle irrespective of claims and defenses which they might have against the

automobile dealers.

c. Cause consumers to be deprived of their rights under 16 C.F.R. part 433.

GEORGIA BROWN'S TRANSACTION WITH LASALLE

21. On February 14, 1992, Georgia Brown and her son Michael Alexander went to Lake

Automotive at Lake Automotive, 701 W. Lake, Maywood, Illinois 60153, and purchased a used

1989 Toyota. 22. Georgia Brown and her son selected the vehicle from the inventory of Lake

Automotive and had no knowledge or reason to know of any defect in the title of Lake

Automotive to the vehicle.

23. Lake Automotive undertook to arrange financing and insurance for Georgia Brown.


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24. Lake Automotive directed Georgia Brown and her son to a State Farm agent, Archie

B. Leach, 1306 Lake Street, Melrose Park, Illinois 60160, for automobile insurance.

25. Georgia Brown and her son then returned to the premises of Lake Automotive, where

Lake Automotive had a loan application and note on forms issued by LaSalle for her to sign.

Georgia Brown signed the papers. A true and accurate copy of the note is attached asExhibit D

[not reprinted infra].

26. LaSalle approved the loan application.

27. The note signed by Georgia Brown provided for 48 payments of $345.54 each.

LaSalle later mailed Ms. Brown a booklet of payment coupons to be sent in with her payments.

28. Within the space of several hours, a draft issued representing the proceeds of the loan

was delivered to the place of business of Lake Automotive. Georgia Brown signed the draft,

which was payable to Lake Automotive.

29. Lake Automotive did not have good title to the car. Georgia Brown was unable to

register the vehicle in her name. A claim to the vehicle was asserted in 1992 by Champion

Federal Savings & Loan Association. Ultimately, Champion took possession of the vehicle.

30. Lake Automotive is now defunct.

31. Prior to the assertion of a claim to the vehicle by Champion Federal, Georgia Brown

made 18 payments of $345.54 each to LaSalle on the note. LaSalle occasionally sent documents

by United States mail to Georgia Brown reminding her to make her payments. A true and correct

copy of one such document is attached asExhibit E[not reprinted infra]. Ms. Brown also sent

several payments by mail.

32. Georgia Brown ceased making payments to LaSalle when she learned that Champion

Federal had a claim to the vehicle and that she may not have received anything in exchange for

her money.

33. LaSalle and the legal department of ABN AMRO North America, Inc., its parent,

which apparently is responsible for legal representation of LaSalle, demanded that Georgia

Brown resume making payments to it, and claim that LaSalle is not subject to claims and


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defenses which Georgia Brown may have against Lake Automotive. Exhibit F, attached [not

reprinted infra], is a letter to that effect received from the legal department of ABN AMRO

North America, Inc., via the United States mail.

DEAN MARTIN'S TRANSACTION WITH LASALLE

34. On September 9, 1991, Dean Martin, Jr. ("Mr. Martin") purchased a used 1990

Toyota automobile ("Toyota") from Enterprise Rent-A-Car ("Enterprise"), 4700 Southwest

Highway, Oak Lawn, Illinois.

35. Enterprise undertook to arrange financing and insurance for Mr. Martin. Enterprise

informed Mr. Martin that he would have to go through its insurance company in order to buy the

car.

36. Enterprise directed Mr. Martin to a State Farm agent, Pat Appleton, whose offices are

at 87th and Stony Island Avenue in Chicago, Illinois.

37. Mr. Martin completed a loan application at the offices of the State Farm agent.

Appleton did a credit check and told Mr. Martin he would need a co-signer.

38. Mr. Martin asked his aunt, Essie Martin, to co-sign. Mr. Martin and his aunt returned

to the State Farm office and signed LaSalle loan documents there. A true and accurate copy of

the loan agreement is attached asExhibit G [not reprinted infra].

39. LaSalle approved the loan application and a draft, apparently signed by Appleton,

was delivered to Enterprise.

40. Mr. Martin did not purchase State Farm automobile insurance. The only thing Mr.

Martin obtained at the State Farm office was an automobile loan from LaSalle.

41. At the time Mr. Martin purchased the Toyota, Enterprise issued a written warranty to

him.

42. In early 1991, the Toyota overheated and ceased functioning, requiring replacement of

the engine. Enterprise refused to honor its warranty and replace the engine, on any terms.

43. After Mr. Martin purchased the Toyota he noticed that it had been extensively

repaired. Initially, Mr. Martin discovered glass under the seat and in the seat tracks. Upon


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further examination, he found that the bumper was scorched as if it had been welded, and that the

undercoating was missing (this occurs if the frame has been straightened or welded). Mr. Martin

took the Toyota to a frame shop, which confirmed that it had been in a severe accident and that

the frame had been repaired.

44. Enterprise never disclosed to Mr. Martin that the Toyota had been in an accident.

When he returned to Enterprise and informed them of his discoveries, Enterprise denied the

Toyota had been in an accident and refused to provide any redress. Mr. Martin would not have

purchased the Toyota had he know it had been in an accident.

45. LaSalle has filed suit against Mr. Martin in an attempt to collect the balance of his

loan, and Mr. Martin seeks to raise defenses against LaSalle. However, the note he signed does

not contain the FTC notice which would have allowed him to raise his defenses against LaSalle.

OTHER TRANSACTIONS

46. Plaintiffs have ascertained through investigation that the manner in which they were

referred from automobile dealers to LaSalle is part of a pattern of generating business engaged in

by LaSalle, and that LaSalle has also disclaimed responsibility for the claims of other consumers

whose transactions were financed in the same manner and who have claims arising from the

purchase of their vehicles.

47. Rosie O'Grady of 1234 S. Elm, Chicago, went to a used car dealership called

Unlimited Auto Sales, Inc., 10300 S. Michigan, Chicago, in November, 1987 to purchase a used

car. Unlimited Auto Sales, Inc. referred her to a State Farm agent for financing. The State Farm

agent wrote her a loan from LaSalle on November 30, 1987. Ms. O'Grady did not have State

Farm insurance prior to obtaining this loan and did not purchase State Farm insurance in

conjunction with this loan. A copy of the promissory note she signed is attached asExhibit H

[not reprinted infra]. Plaintiffs have determined, through discovery, that Unlimited Auto Sales,

Inc. referred at least 175 other customers to LaSalle, pursuant to a referral arrangement between

Unlimited Auto Sales, Inc. and two or three State Farm insurance agents who were acting as

agents for LaSalle.


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48. Chet Atkins of 456 S. Broad, Chicago, went to A-1 Motors, Inc. at 5670 S. Western,

Chicago, on August 6, 1992 to purchase a used vehicle. An A-1 Motors salesman drove Mr.

Atkins to a State Farm insurance agent at 71st and California in Chicago, where the State Farm

agent completed a LaSalle loan application for Mr. Atkins. LaSalle approved the loan and Mr.

Atkins signed the loan documents at the State Farm agent's office on August 6, 1992. Mr.

Atkins' loan documents are attached asExhibit I[not reprinted infra]. On information and belief,

A-1 Motors referred other customers to LaSalle, pursuant to an arrangement between State Farm

agents and A-1 Motors.

49. Tanya Tucker, of 789 W. Highland, Chicago and Mike Brando went to a used car

dealer on Ashland Avenue in Chicago, which is no longer in business, to purchase a vehicle on

August 4, 1989. The dealer had loan applications and forms from LaSalle in its offices, provided

by a State Farm agent, and Ms. Tucker and Mr. Brando completed a loan application at the

dealership. Ms. Tucker and Mr. Brando were approved for a loan from LaSalle, and signed the

loan documents at the dealership. Ms. Tucker's loan documents are attached asExhibit J[not

reprinted infra]. Mr. Brando and Ms. Tucker later stopped payments on the loan because the

vehicle they purchased was defective, and LaSalle filed suit against them to collect the balance

allegedly due.

50. On information and belief, Currie Motors in Elgin, Illinois refers customers to

LaSalle for financing, maintains LaSalle credit applications and loan documents on its premises

and has customers complete the applications and sign the loan forms on its premises.

USE OF MAILS AND INTERSTATE WIRES

51. Extensive use of the mails took place in connection with LaSalle's execution of the

scheme described above. LaSalle invited the consumers to pay by mail, and most did so.

LaSalle or its representatives transmitted demands for payment by mail. LaSalle or its

representatives used the mails to transmit representations, such asExhibit F, that they were not

responsible for claims that consumers had against automobile dealers.


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52. On information and belief, based on normal bank practices with respect to the

origination of consumer credit transactions, LaSalle used interstate wire transmissions with credit

reporting agencies in order to select the consumers with respect to which it engaged in the

conduct complained of. The use of wire communications with credit reporting agencies was

material, if not essential, to the commission of the scheme complained of herein, because the

object of the scheme was to get the consumer's money, and LaSalle therefore had to determine if

the consumer was creditworthy and able to pay money.

CLASS ALLEGATIONS

53. Mr. Martin brings this action on behalf of a class. The class consists of all persons

who: a) purchased an automobile; b) that was financed by LaSalle; c) the person was referred to

LaSalle by the automobile dealer selling the automobile, either directly or through the medium of

a State Farm agent who had a business relationship with the seller and LaSalle, d) the transaction

was documented by LaSalle as one for personal, family or household purposes; e) the financing

by LaSalle was not a refinancing of a prior automobile loan; f) the loan documentation for the

financing transaction does not contain the notice required by 16 C.F.R. Part 433; and g) either i)

the loan is still unpaid or (ii) the person notified LaSalle, the automobile dealer, a judicial

tribunal, or a public or private agency of an unsatisfied claim or complaint arising from the

transaction.

54. Plaintiffs allege on information and belief that the class is so numerous that joinder of

all members is impractical. Investigation has revealed that LaSalle sought to arrange for the

referral of business from automobile dealers through numerous State Farm agents, and that there

are other consumers who have claims arising from their transactions.

55. There are questions of law and fact common to the class. The principal issues raised

are:

a. Whether transactions generated through the method of doing business alleged

herein are subject to the FTC regulation abrogating the holder in due course

regulation.


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b. Whether defendant engaged in the scheme alleged in this complaint to circumvent

the FTC regulation.

c. Whether such a scheme, engaged in for the purpose of getting money from

consumers, constitutes a violation of the federal mail fraud statute, 18 U.S.C.

1341, and the federal wire fraud statute, 18 U.S.C. 1343.

d. Whether LaSalle conducted the affairs of its corporate group through a pattern of

mail fraud, thereby violating 18 U.S.C. 1962(c).

e. Whether the scheme complained of herein is an unfair or deceptive practice,

violative of the Illinois Consumer Fraud Act.

56. Plaintiffs' claim are typical of the claims of the class members. All are based on the

same legal and remedial theory.

57. Mr. Martin will fairly and adequately protect the

interests of the class. He has suffered serious financial injury, in that LaSalle is suing him and

his aunt in an attempt to force them to pay for a defective vehicle and Mr. Martin is unable to

assert his claims and defenses against LaSalle due to LaSalle's failure to include the FTC notice

in his note. He feels that he has been victimized, wishes to obtain redress of the wrong, and

wants defendant stopped from perpetrating similar wrongs on others. To that end, he has

retained counsel experienced in handling class actions and actions involving unlawful business

practices. Neither plaintiffs nor their counsel have any interests which might cause them not to

vigorously pursue this action.

58. Certification of the class under Rule 23(b)(3) is appropriate. The questions of law

and fact common to the members of the class predominate over any questions affecting only

individual members. A class action is superior to other available methods for the fair and

efficient adjudication of the controversy, in that:

a. Many of the victims are poor and unsophisticated inner-city and minority

individuals who are unaware of their rights and lack the economic resources


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necessary to undertake litigation against one of the largest banking organizations

in Chicago.

b. Because the essence of the wrong was the concealment of material information

from the consumer, it is likely that most of the victims are not aware that they

have been wronged.

c. Concentration of the litigation concerning this matter in this Court is desirable, in

that LaSalle is located within this District, and the relevant documents are in this

District.

d. The class is believed to be of moderate size and the difficulties likely to be

encountered in the management of a class action are not great.

COUNT I -- RICO

59. Plaintiffs incorporate 1-58.

60. The corporate group of which LaSalle is a part is an enterprise within the meaning of

18 U.S.C. 1961(4). Its activities affect interstate commerce.

61. LaSalle devised and implemented the scheme described in 12-20. This scheme

constitutes a scheme or artifice to defraud, within the meaning of 18 U.S.C. 1341 and 18 U.S.C.

1343.

62. As described above, the mails and interstate wires were used for the purpose of

executing this scheme and artifice. 63. LaSalle conducted and participated in the

conduct of the affairs of the enterprise described above through the scheme described above, in

violation of 18 U.S.C. 1962(c).

64. Plaintiffs and each member of the class suffered pecuniary injury as a result of

these violations.

RELIEF

WHEREFORE, plaintiffs request that the Court grant the following relief against

defendant:

a. Treble damages.


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b. Attorney's fees, litigation expenses and costs.

c. Such other or further relief as the Court deems appropriate.

COUNT II -- CONSUMER FRAUD ACT

65. Plaintiffs incorporates 1-58.

66. Section 2 of the Illinois Consumer Fraud Act,Ill.Rev.Stats., ch. 121-1/2, 262,

("CFA") provides:

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, or the use or employment of any practice described

in Section 2 of the "Uniform Deceptive Trade Practices Act," approved August 5,

1965, are hereby declared unlawful whether any person has in fact been misled,

deceived or damaged thereby. In construing this section consideration shall be

given to the interpretations of the Federal Trade Commission and the federal

courts relating to Section 5(a) of the Federal Trade Commission Act.

67. LaSalle violated 2 by devising and implementing the scheme described in 12-20,

above. This unfair and deceptive practice was committed in connection with the conduct of trade

and commerce in (a) the automobiles and other goods and services financed by LaSalle and (b)

the provision of financing.

68. Plaintiffs and each member of the class described below suffered pecuniary injury as

a result of these violations. 69. Pursuant to 10a of the Consumer Fraud Act,

Ill.Rev.Stats., ch. 121-1/2, 270a, plaintiffs and each class member are entitled to actual and

punitive damages, a declaratory judgment that LaSalle is subject to claims and defenses that exist

with respect to the transactions financed by LaSalle, an injunction requiring reformation of the

affected loan agreements, attorney's fees and costs, and other appropriate relief.


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RELIEF

WHEREFORE, plaintiffs request that the Court grant the following relief against

LaSalle:

a. Appropriate compensatory and punitive damages.

b. A declaratory judgment that LaSalle is subject to claims and defenses that exist

with respect to the transactions financed by LaSalle.

c. An injunction requiring reformation of the affected loan agreements.

d. Attorney's fees, litigation expenses and costs.

e. Such other or further relief as the Court deems appropriate.


4.4 Memorandum In Opposition to Motion to Dismiss

IN THE UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

GEORGIA BROWN and DEAN MARTIN, JR.[vs.]LASALLE NORTHWEST NATIONAL BANK

No 92 C 8392

Plaintiff, Georgia Brown ("Brown"), submits the following memorandum in opposition to

defendant, LaSalle Northwest National Bank's ("LaSalle") motion to dismiss.

I. THE FTC NOTICE WAS REQUIRED TO BEINCLUDED IN BROWN'S CONTRACT

In 1976, the Federal Trade Commission ("FTC") issued a regulation which makes it an

unfair and deceptive practice for a seller to, directly or indirectly, accept as payment for the sale

of consumer goods the proceeds of a purchase money loan without including in the contract a


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1 The vehicle was eventually repossessed by Champion Federal, the actual title holder.

notice subjecting the lender to claims and defenses which the consumer has against the lender.

16 C.F.R. 433.2(b). The FTC regulation abrogates the holder in due course rule, which

separates the buyer's duty to pay for goods and services from the seller's duty to perform as

promised. 40 Fed.Reg. at 53522. The regulation was intended to shift the cost of seller

misconduct in credit sales transactions from the consumer to the financer, who is in a better

position to both police sellers and obtain recourse against them. 40 Fed.Reg. at 53522-3. Thus,

when the FTC Notice is included in a consumer loan contract, the consumer may assert his

claims and defenses against the financer as well as the seller.

LaSalle incorrectly contends that Brown's transaction is not subject to the FTC

Regulation because it did not have the necessary business arrangement/relationship with her

seller, Lake. LaSalle's argument mischaracterizes Brown's complaint and the FTC Guidelines.

Brown has alleged that Lake arranged for the financing of Brown's purchase through

LaSalle, and had preprinted LaSalle loan applications and contract forms on its premises, which

it prepared for Brown's signature. (Cmplt., 22, 24). The preprinted form LaSalle supplied to

Lake to document the loan did not contain the FTC notice required by 16 C.F.R. part 433.

(Cmplt. 18,Ex. A) LaSalle, in conjunction with certain State Farm insurance agents and car

dealers such as Lake, had devised a scheme whereby it supplied the dealers with preprinted loan

forms which did not contain the FTC-required notice, with the intention of depriving consumers

of their rights under 16 C.F.R. part 433. (Cmplt. 19) When Brown discovered that Lake did not

have good title to the vehicle1 and ceased payments to LaSalle, LaSalle informed her that she had

no right to cease payments on the loan because LaSalle was not subject to 16 C.F.R. part 433.

(Cmplt.,Ex. B)

The arrangement between LaSalle and Lake plainly makes Brown's transaction subject to

the Regulation. The FTC's definition of "business arrangement" is very broad:

Any understanding, procedure, course of dealing, or arrangement, formal orinformal, between a creditor and a seller, in connection with purchases of goods orservices. 16 C.F.R. 433.1(g).


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2 FTC Staff Guidelines on Trade Regulation Rule Concerning Preservation of Consumer'sClaims and Defenses, May 4, 1976, p. 16; 41 Fed.Reg. 20026; CCH Trade Regulation Reporterpar. 38,031 at pp. 41,135-3 and 41,135-4.

The FTC's Guidelines for determining whether a transaction constitutes a "business

arrangement" repeatedly state that the "maintenance of loan application forms in the office of the

seller" is a "business arrangement" within the reach of the Regulation.2 Additionally, the FTC

has flatly stated:

A seller has an agreement with a creditor to maintain loan application forms in theseller's office. When a buyer requests financing, the seller assists the buyer infilling out the forms. This relationship constitutes an affiliation and the Noticemust be included in the consumer credit contract. CCH Trade RegulationReporter, 38,031, p. 41,135-4. (Ex. A, attached [not reprinted infra])

LaSalle's motion ignores the fact that Lake maintained LaSalle loan applications and

forms on its premises and assisted Brown in completing them. These facts make Brown's

transaction covered by the Regulation even if hers were the first Lake transaction LaSalle

financed.

These allegations are reinforced by those concerning the involvement of State Farm

agents in acting as intermediaries between LaSalle and the dealers. Brown has alleged that not

only does the referral arrangement between LaSalle, State Farm agents and automobile dealers

constitute a "business arrangement," but also that one of LaSalle's purposes for involving the

State Farm agents is to enable it to "disclaim any responsibility for claims or disputes between

the customers and automobile dealers on the theory that the business was referred by the State

Farm agent and not the dealer." (Cmplt., 12)

In summary, Brown has alleged facts showing that her transaction was subject to the FTC

Regulation.


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3 LaSalle's claim that Brown has alleged conduct which only lasted a few days (LaSalle mot.,21(e)) is clearly incorrect. The fact that LaSalle used a standard printed form indicates that itsconduct lasted more than a few days. The conduct appears to have continued until at least 10months later, when Cmplt., Ex. B was sent to plaintiff's counsel. Brown's contract called forpayments over 4 years, and other loan contracts were comparable in length.

4 J.D. Marshall Int'l, Inc. v. Redstart, Inc., 935 F.2d 815, 821 (7th Cir. 1991) (RICO claim wasbased on the breakdown of a business relationship between two parties to a contract regarding thepayment of defendant's liabilities); Cocose, supra (RICO claim was based on a generalcontractor's failure to pay some of its subcontractors for a project); Uni-Quality Inc. v. Infotronx,

(continued...)

II. BROWN HAS STATED A CLAIM UNDER RICO.

A. BROWN HAS ALLEGED A "PATTERN."

LaSalle incorrectly argues that Brown has not satisfied the RICO "pattern" requirement.

LaSalle contends that Brown has not satisfied the "continuity" prong of the "pattern" requirement

because she has alleged the specific facts concerning only one transaction.

The pattern requirement is satisfied by alleging "a threat of continued criminal activity,

which is present if the racketeering activity constitutes an entity's regular way of doing business,

or if the racketeering activity, by its very nature is likely to extend into the future." 420 East Ohio

Ltd. Partnership v. Cocose, 1992 U.S.App. Lexis 31858, *5 (7th Cir. 1992);H. J.Inc. v.

Northwestern Bell Telephone Co., 492 U.S. 229, 242 (1989).

Brown has alleged that it was part of LaSalle's "regular way of doing business" to

disseminate contracts which were required to, but did not contain the FTC Notice. (Cmplt. 18)

This allegation is corroborated by the fact that the offending document was a standard preprinted

form, which was obviously intended for use in multiple transactions. The dissemination of such

documents necessarily began prior to Brown's transaction. Moreover, LaSalle defended its

practice ten months after Brown signed her contract (Cmplt.,Ex. B), which demonstrates that

there is a threat that LaSalle's conduct will continue into the future.3 Brown's allegations are thus

sufficient to satisfy the RICO "pattern" requirement.

The cases cited by LaSalle in which courts found that the "pattern" requirement was not

satisfied involved single transactions, with one or a small number of victims, and conduct

directed against thoseparticularpersons, not the general public.4 As the court stated in one of


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4(...continued)Inc., 974 F.2d 918 (7th Cir. 1992) (RICO claim was based on the defendant's failure to payplaintiff for its services); United States Textiles, Inc. v. Anheuser Busch Co., 911 F.2d 1261 (7thCir. 1990) (RICO claim was based on a dispute over one options contract).

those cases, there is "no indication that this is a type of activity in which the defendant normally

engages, or, indeed, that there are other potential victims waiting in the wings." United States

Textiles v. Anheuser Busch Co., 911 F.2d 1261, 1269 (7th Cir. 1990).

Where a plaintiff allege facts about his transaction, but also alleges that the defendant's conduct

was directed to the general public, the pattern requirement is satisfied. Ferleger v. First Amer.

Mtge. Co., 662 F.Supp. 584, 589 (N.D.Ill. 1987).

LaSalle cites no case suggesting that the dissemination of fraudulent printed form

contract documents intended for use with any member of the public who enters one of multiple

places of business does not satisfy the "pattern" requirement. Such a scheme by its very nature

involves a threat of harm to a large number of victims. In this regard, it is significant that

LaSalle's conduct was not directed against Brown in particular -- it was entirely fortuitous that

she entered Lake's place of business and became a victim.

LaSalle's characterization of Brown's claim as "garden variety fraud" which does not pose

a significant threat is thus plainly erroneous.

B. BROWN HAS COMPLIED WITH FED.R.CIV.P. 9(b).

LaSalle contends that Brown has failed to satisfy the particularity requirements of

Fed.R.Civ.P. 9(b). However, LaSalle's own cases show that Brown has satisfied Rule 9(b).

Although Rule 9(b) does require more than is required under notice pleading, it does not require

the plaintiff to "set out the detailed evidence plaintiffs would use to support the claim at a later

date."Dunham v. Independence Bank, 629 F.Supp. 983, 991 (N.D.Ill. 1986);Heastie v.

Community Bank, 690 F.Supp. 716, 722 (N.D.Ill. 1988). Even under Rule 9(b) "malice, intent,

knowledge and other condition of mind of a person may be averred generally." Fed.R.Civ.P. 9(b);


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5 Thus, LaSalle's complaint regarding Ms. Brown's general allegation regarding LaSalle'sintent is meritless. (LaSalle's Motion, 22(c)). Furthermore, it is obvious from Cmplt., Ex. B thatwe are not dealing with inadvertent conduct.

6 "Use of the mails to collect the proceeds of the fraudulent scheme is sufficient" to support amail fraud claim. United States v. Weinberg, 656 F.Supp. 1020, 1025 (E.D.N.Y. 1987).Obviously, the objective of the scheme to disseminate contract forms which omitted the FTCnotice was to get money from persons, such as Brown, who would be protected from having topay by the FTC notice. (Cmplt. 19)

General Elec. Capital Corp. v. Munson Marine, Inc., 1992 U.S.Dist. Lexis 2335 (N.D.Ill. 1992).5

All that is required to plead mail fraud under RICO is "a brief sketch of how the

fraudulent scheme operated, when and where it occurred, and the participants."Heastie, supra,

690 F.Supp. at 722. Brown has met these requirements. She set forth the specifics of her

transaction with LaSalle in detail. (Cmplt. 20-33) In addition, she alleged a brief sketch of the

scheme involving LaSalle and State Farm agents (Cmplt. 11-19), and attached a letter (Cmplt.,

Ex. B) showing State Farm's role and that LaSalle's actions were intentional rather than

inadvertent. With respect to LaSalle's use of the mails and wires to further its scheme, Brown

alleged that LaSalle used the mail to make payment demands and collect payments (Cmplt. 34),6

that LaSalle used the wires to run credit checks on loan applicants to determine if they were able

to pay (Cmplt., 35) and that Brown made 18 payments to LaSalle (Cmplt. 30). LaSalle invited

payment by mail by sending coupons to Brown and other obligors. (Ex. B, attached [not reprinted

infra]) Alleging the exact date of each payment is neither required nor meaningful -- LaSalle's

own records show when it received payments.

Finally, although Brown has not named other victims of LaSalle's fraudulent scheme, she

has alleged facts showing that other victims are involved, i.e., that the offending loan forms were

standard preprinted forms disseminated by LaSalle (Cmplt. 11(c), 18, 24), and that LaSalle

stated that it intended to omit the FTC Notice (Cmplt.,Ex. B).

The cases LaSalle cites where the complaint was dismissed for lack of particularity do not

resemble this case. The plaintiff inIn re VMS Securities, 752 F.Supp. 1373 (N.D.Ill. 1990),

alleged a securities fraud scheme involving multiple defendants, but did not allege which

defendants did what. Similarly in Coronet Ins. Co. v. Seyforth, 665 F.Supp. 661, 667 (N.D.Ill.


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7 The fraud claim in Reynolds was also defective for other reasons, including the fact that theplaintiffs had discovered the undisclosed facts and thus could not prove the omissions causedtheir injury. In this case, LaSalle's omission of the FTC Notice in Ms. Brown's contract is clearlythe cause of her inability to assert her breach of warranty of title claims against LaSalle, contraryto LaSalle's suggestion otherwise. (LaSalle mot., 22(a))

8 Even though the duty to disclose in this case was technically Lake's, LaSalle is liablebecause it supplied the means of deception: the preprinted loan forms. Waltham Watch Co. v.FTC, 318 F.2d 28, 32 (7th Cir. 1963) ("those who put into the hands of others the means bywhich they may mislead the public, are themselves guilty of a violation of 5 of the FTC Act").

9 United States v. Biesiadecki, 933 F.2d 539, 543 (7th Cir. 1991); United States v. Keplinger,776 F.2d 678,697-8 (7th Cir. 1985); United States v. O'Malley, 707 F.2d 1240, 1247 (7th Cir.1983); United States v. Rasheed, 663 F.2d 843, 848-9 (9th Cir. 1991).

1987), another multiple defendant securities fraud case, the plaintiff "lumped" all of the

defendants together and failed to state which defendant did what. Finally, in Uni-Quality, supra,

the plaintiff failed to allege what the misrepresentations were. Here there is one defendant, and

the conduct complained of is clearly identified.

Brown has pled more than enough facts to put LaSalle on reasonable notice as to her

cause of action and to allow LaSalle to prepare a responsive pleading. LaSalle's motion to

dismiss should therefore be denied.

C. OMISSIONS CAN FORM THE BASIS OF A RICO CLAIM

LaSalle mistakenly contends that an omission cannot form the basis for a mail fraud

violation. LaSalle contends thatReynolds v. East Dyer Development Co., 882 F.2d 1249 (7th

Cir. 1989), stands for the proposition that an omission can never serve as the basis for a RICO

mail fraud violation (LaSalle mot., 16).

What the court inReynolds actually said was that a "mere failure to disclose, absent

something more" does not constitute fraud. 882 F.2d at 1252. The "something more" that was

missing inReynolds, but present in this case, is a duty on the part of at least one participant to

disclose the omitted information or an "elaborate attempt at concealment." 882 F.2d at 1252-3.7

Here, the FTC Regulation supplies the duty,8 and LaSalle engaged in an "elaborate attempt" to

distance itself from Lake and other sellers in order to avoid that duty. Numerous courts, in

addition toReynolds, agree that an omission can constitute the basis of a mail fraud claim.9


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10 "A plaintiff is free, in defending against a motion to dismiss, to allege without evidentiarysupport any facts he pleases that are consistent with the allegations of the complaint, in order toshow that there is a state of facts within the scope of the complaint that if proved (a matter fortrial) would entitle him to judgment." Early v. Bankers Life & Cas. Co., 959 F.2d 75, 79 (7th Cir.1992).

Furthermore, the omission of the FTC Notice is not a simple omission. This is not a

securities case in which the allegation is that someone should have "blown the whistle" or

provided more information. The note which should have contained the Notice created an

affirmative obligation. The result of omitting the Notice was to make the obligation more

extensive than it should have been. Finally, as Brown has also alleged, LaSalle affirmatively

demanded payment from Brown (Cmplt.,Ex. B) after being apprised that Brown had paid for a

car for which the seller could not transfer title.

D. BROWN HAS ALLEGED A SUFFICIENTENTERPRISE NEXUS.

Brown has alleged that LaSalle is the "person" under 18 U.S.C. 1962(c), and that

LaSalle's corporate group, headed by ABN AMRO North America, Inc., is the "enterprise."

Brown has further alleged in some detail how LaSalle and its corporate group engage in interstate

commerce (Cmplt. 7) and that LaSalle conducted and participated in the affairs of the

enterprise. (Cmplt. 47) Brown's allegations are corroborated by the financial statement of the

parent (Ex. C), which shows that LaSalle's profits went to its parent, and that its parent used that

revenue to raise capital from the public.10

The Seventh Circuit has made it clear that these allegations are sufficient to satisfy

1962(c) where the "person" is a subsidiary of the "enterprise": "we think it virtually self-evident

that a subsidiary acts on behalf of, and thus conducts the affairs of its parent corporation. We

doubt that more detailed allegations on the subject would serve any useful purpose, and we see

no reason to require them."Haroco v. American Nat'l Bk. & Tr. Co., 747 F.2d 384, 402-3 (7th


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11 The Supreme Court has also stated: "A parent and its wholly owned subsidiary have acomplete unity of interest. Their objectives are common, not disparate; their general corporateactions are guided or determined not by two separate corporate consciousness, but one. They arenot unlike a multiple team of horses drawing a vehicle under the control of a single driver. Withor without a formal `agreement,' the subsidiary acts for the benefit of the parent, its soleshareholder. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 771 (1984).

12 The other case cited by LaSalle, Dun-Rite Tool & Fabricating Co. v. American Nat'l Bank,1991 WL 293092 (N.D.Ill. 1991), also does not state that a plaintiff must plead control under1962(c).

Cir. 1984);11accord,Aitken v. Fleet Mtge. Corp., 1992 U.S.Dist. Lexis 1687 (N.D.Ill. 1992) (Ex.

D, attached [not reprinted infra]).

Despite the Seventh Circuit's position on this issue, LaSalle argues that Brown has not

met the "enterprise" nexus, because she has not alleged that LaSalle controlledthe affairs of its

parent. However, under the plain language of 1962(c) andHaroco, there is no requirement that

the "person" control the "enterprise," but only that it conductedorparticipatedinconducting the

affairs of the enterprise.Id..

LaSalle mischaracterizes dicta contained in a footnote inDunham v. Independence Bank,

629 F.Supp. 983, 991, n.10 (N.D.Ill. 1986). InDunham, Judge Shadur found that the 1962(c)

requirements were not met because the plaintiff did not allege that the parent engaged in

interstate commerce.Id. Judge Shadur also noted, without citingHaroco, that he did not believe

the plaintiff sufficiently alleged the subsidiary's involvement in the affairs of the parent, and

elaborated in a footnote that while it may be possible to infer that a parent controls a subsidiary,

"there is no basis for assuming the subsidiary's comparable degree of control over its parent."Id.

Contrary to LaSalle's assertion, Judge Shadur never said that a plaintiff is required to plead that a

subsidiary controls its parent.12

Brown has clearly satisfied the Seventh Circuit's requirements with respect to 1962(c),

and LaSalle's attempt to change the law in this Circuit to require a plaintiff to allege that a

subsidiary controls the affairs of its parent should be rejected.


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13

Vietnam Veterans of America, Inc. v. Guerdon Industries, Inc., 644 F.Supp. 951, 963 (D.Del. 1986)(plaintiff sought to impose liability on the lender for the seller's conduct based solely on the FTCRegulation; the Court noted that the plaintiffs did not allege that the lender participated in anymisconduct); Norwest Bank v. Kovalski, 1991 WL 4051 (Minn.App. 1991) (plaintiff sought to holderlender liable for seller's conduct based solely on the FTC Regulation); Capital Bk. & Tr. Co. v. Lacey,393 So.2d 668 (La. 1980) (same).

14 Even absent the FTC Notice, a lender cannot qualify as a holder in due course or innocentassignee if it had notice of a consumer's claims and/or defenses. Thus, since LaSalle knew thatthe FTC Notice should have been included in its contract, it cannot now claim to have no noticeof that fact.

III. BROWN HAS STATED A CLAIM FOR VIOLATIONOF THE ILLINOIS CONSUMER FRAUD ACT

LaSalle's attack on Brown's Illinois Consumer Fraud Act ("ICFA") count (Count II), is

based on a complete mischaracterization of Brown's cause of action. Count II does not attempt to

impose liability on LaSalle for Lake's conduct based solely on the FTC Regulation, as LaSalle

would have this Court believe. Instead it alleges thatLaSalleitselfengaged in unfair and

deceptive conduct which violated ICFA. Specifically, LaSalle engaged in a scheme to deprive

consumers of the protections afforded by the FTC Regulation by disseminating illegal forms for

use by sellers.

LaSalle's lengthy exposition about the fact that the FTC Regulation does not apply to

lenders and that consumers are not protected by the FTC Regulation if the FTC Notice is not in

their contract is entirely irrelevant, as are the cases LaSalle cites.13 A consumer can sue a lender

for its own wrongful conduct regardless of whether the FTC notice is included in his contract.14

Additionally, the fact that the FTC does not have authority to regulate lenders does not mean that

it is not an unfair and deceptive practice under state law for a lender to intentionally deprive

consumers of their rights.

One who prepares a misleading representation for another is liable. Waltham Watch Co. v.

FTC, 318 F.2d 28, 31 (7th Cir. 1963) (owner of trademark long associated with expensive

domestic watches granted license to use mark in connection with cheap imported clocks was held

liable under 5% of the FTC Act because "[t]hose who put into the hands of others the means by

which they may mislead the public, are themselves guilty of a violation of Section 5 of the


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Federal Trade Commission Act"); People ex rel. Lefkowitz v. Theraputic Hypnosis, Inc., 83

Misc.2d 1068, 374 N.Y.S.2d 576 (N.Y.Sup. Ct. 1975) (fraudulent educational institution which

issued "diplomas" to untrained individuals who used them to sell worthless "services" committed

unfair trade practice on same theory). The fact that the party who prepares the misrepresentation

also derives pecuniary benefit from the misrepresentation (because it is the lender) hardly

absolves it.

Courts have held that it is an unfair and deceptive practice for a lender to participate in a

scheme to evade the FTC Regulation in order to prevent consumers from asserting claims and

defenses against the lender.Jackson v. Culinary School of Washington, 788 F.Supp. 1233, 1253

(D.D.C. 1992) (it was a violation of the District of Columbia consumer protection act for a lender

to disseminate loan forms which did not contain the FTC notice);Heastie v. Community Bank,

727 F.Supp. 1133, 1138 (N.D.Ill. 1989);Iron & Glass Bank v. Franz, 9 D.& C.3d 419, 428 (C.P.

Allegheny County, Pa. 1978) (a bank's knowing participation in a transaction that violates the

FTC Regulation was an unfair and deceptive practice under the Pennsylvania consumer

protection act).

InHeastie, the defendant bank financed home improvement contracts which included the

FTC notice, but also had consumers sign loans which stated that the bank was not responsible for

the actions of the contractor. The plaintiff alleged that the non-responsibility provision violated

the CFA "by sidestepping the requirements of part 433" of the FTC Regulation. 727 F.Supp. at

1137. The bank argued that the claim should be dismissed because the FTC Regulation does not

apply to lenders, 727 F.Supp. at 1138, but the court rejected that argument, because the claim

was brought under ICFA, not the FTC Regulation. The Court held that the bank's conduct

violated ICFA because "the mechanical abrogation of consumer claims and defenses is unfair"

and because the use of the non-responsibility provision "substantially injures consumers by

taking away the legal protection provided by the notice requirements of part 433." 727 F.Supp. at

1139.


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15

ICFA 2 provides that "[i]n construing this section, consideration should be given to theinterpretations of the Federal Trade Commission and the federal courts relating to Section 5(a) of theFederal Trade Commission Act." Ill.Rev.Stats., ch. 121-1/2, 262. People ex rel. Hartigan v. All Amer.Alum. & Const. Co., 171 Ill.App.3d 27, 524 N.E.2d 1067 (1st Dist. 1988).

16 National Consumer Law Center, Unfair and Deceptive Acts and Practices, 6.6.3.3.2 (3dEd. 1991) (Ex. E, attached).

The FTC has also found it to be an unfair and deceptive practice for a lender to attempt to

prevent consumers from asserting claims and defenses provided by the FTC Regulation.15In re

Beneficial Corp., 96 F.T.C. 120, 122 (1980) (it was misleading, deceptive and unfair practice

within the meaning of 5 of the FTC Act to include a provision in a contract stating that a

consumer must notify the lender of claims and defenses within a limited time period or they will

be waived). In addition, the Regulation itself stated that it was unfair to separate a consumer's

duty to pay for goods and services from a seller's duty to perform as promised. 40 Fed.Reg.

53,506, 53,523.

B. THE AVAILABILITY OF AFFIRMATIVE RELIEFUNDER THE FTC REGULATION IS IRRELEVANT.

LaSalle's arguments concerning the circumstances under which affirmative relief is

available under the FTC Notice represents an attempt to insert a false issue into the case. Brown

is not suing under the Notice.

One of the two cases cited by LaSalle, Ford Motor Credit Co. v. Morgan, 404 Mass. 537,

536 N.E.2d 587 (1989), has been criticized as being incorrectly decided.16 Moreover, the

damages suffered by the consumers inMorgan were not even comparable to the damages Brown

suffered. InMorgan, the consumers complained of fairly minor defects in a car they had

purchased, which had not prevented them from driving the car for eighteen months. 536 N.E.2d

at 588. Paying money to purchase something which the seller does not own caused substantial

damage to Brown, which would justify affirmative relief even underMorgan.

LaSalle's other case, In re Hillsborough Holdings Corp., 146 B.R. 1015 (Bankr.

M.D.Fla. 1992), indicates that even if Brown had sued under the Regulation, her damages would


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justify affirmative recovery. The court inHillsborough found that home purchasers who had

begun payments and taken possession of their homes suffered sufficient damage to justify

affirmative recovery under the Regulation when liens were imposed on their homes by a third

party. 146 B.R. at 1021. The damage suffered by Brown (paying $6,000 on a car that was

ultimately repossessed by a third party) was virtually identical.

CONCLUSION

For the reasons stated above, the Motion to Dismiss of LaSalle National Bank should be

denied.

Respectfully submitted,


4.5 Plaintiffs' First Request for Admissions, Interrogatories, andProduction of Documents



EASTERN DIVISION


[vs.]


92 C 8392

PLAINTIFF'S FIRST DISCOVERY REQUEST

Plaintiff, Georgia Brown ("Brown") hereby requests that Defendant LASALLE BANK

NORTHWEST NATIONAL BANK ("LaSalle") respond to the following interrogatories,

document requests, and requests for admissions. Documents are to be produced at the offices of

Brown's counsel.


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Unless otherwise specified in a particular paragraph, the time period covered by this

request is January 1, 1988 to the present. Other instructions and definitions to be used in making

your response are attached hereto asExhibit 1 [not reprinted infra]. If any paragraph of this

request is believed to be ambiguous or unduly burdensome, please contact the undersigned and

an effort will be made to remedy the problem.

I. REQUESTS FOR ADMISSIONS

1. Brown is an individual who resides in Chicago, Illinois.

2. LaSalle is a national bank with its principal place of business in Chicago, Illinois.

3. LaSalle is part of a corporate group engaged in the provision of a variety of financial

services in the Chicago area.

4. LaSalle National Corporation owns 100% of LaSalle National Bancorp Inc.

5. LaSalle National Bancorp Inc. owns 100% of LaSalle National Bank, LaSalle National

Trust, N.A. and LaSalle Community Bancorp, Inc.

6. LaSalle Community Bancorp, Inc. is a six-bank holding company.

7. LaSalle Northwest National Bank is 100% owned by LaSalle Community Bancorp,

Inc.

8. LaSalle Northwest National Bank is 100% owned by LaSalle Community Bancorp,

Inc.

9. LaSalle National Corporation is wholly owned by ABN AMRO North America, Inc., a

wholly owned subsidiary of ABN AMRO Bank N.V., a Dutch corporation. (A.B.N. AMRO

Bank).

10. LaSalle Northwest National Bank has depositors who are located in states other than

Illinois (according to their mailing addresses in the Bank's records).

11. The profits derived by LaSalle Northwest National Bank, including profits from

lending activities, are ultimately transmitted to ABN AMRO Bank N.V.

12. LaSalle Northwest National Bank finances the purchase by consumers of cars

produced in states other than Illinois.


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13. LaSalle Northwest National Bank entered into agreements with certain State Farm

insurance agents whereby State Farm agents would refer persons desirous of financing to LaSalle

Northwest National Bank.

14. LaSalle Northwest National Bank did not prevent the State Farm insurance agents

who agreed to refer business to it from obtaining referrals from automobile dealers.

15. LaSalle Northwest National Bank knew that the State Farm insurance agents who

agreed to refer business to it were obtaining referrals from automobile dealers.

16. LaSalle Northwest National Bank provided State Farm insurance agents with printed

forms of credit applications.

17. LaSalle Northwest National Bank provided State Farm insurance agents with printed

forms of notes which did not contain the notice set forth in 16 C.F.R. part 433.

18. LaSalle Northwest National Bank did not prevent the State Farm insurance agents

who were provided with its forms from putting the forms in the hands of automobile dealers.

19. LaSalle Northwest National Bank knew that the State Farm insurance agents who

were provided with its forms were putting the forms in the hands of automobile dealers.

20. On February 14, 1992, Brown purchased a used Toyota from Lake Automotive, 701

W. Lake, Maywood, Illinois 60153.

21. While at Lake Automotive, Brown signed a loan application on a form supplied by

LaSalle Northwest National Bank.

22. While at Lake Automotive, Brown signed a note on a form supplied by LaSalle

Northwest National Bank, of whichExhibit A to the complaint in this action is a copy.

23. LaSalle Northwest National Bank approved Brown's loan application.

24. Within three hours after LaSalle Northwest National Bank received Brown's loan

application, a check issued by LaSalle Northwest National Bank representing the proceeds of the

loan was delivered by LaSalle Northwest National Bank directly to the place of business of Lake

Automotive.

25. Brown signed this check, which was then endorsed over to Lake Automotive.


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26. Brown made 18 payments of $345.54 each to LaSalle Northwest National Bank on

the note. Some of the payments were made by mail.

27. LaSalle Northwest National Bank receives most payments on automobile loans in the

mail.

28. LaSalle Northwest National Bank provided consumers obligated to it on auto loans

with payment coupons and mailing labels to facilitate their making payments by mail.

29. When customers failed to make timely payments on auto loans, it is the practice of

LaSalle Northwest National Bank to send demands for payment to them by mail.

30. LaSalle Northwest National Bank is able to obtain credit reports on consumers via

telephone lines. Some of the agencies which provide the credit reports are located in states other

than Illinois.

31. There are more than 50 people who satisfy the following criteria:

a. They purchased an automobile;

b. The purchase was financed by LaSalle;

c. The purchaser was referred to LaSalle by a State Farm agent;

d. The transaction was documented by LaSalle as one for personal, family or

household purposes;

e. The loan application was filled out at a car dealer or was transmitted to LaSalle

from a facsimile machine belonging to a car dealer.

f. The note signed by the person does not contain the notice specified in 16 C.F.R.

part 433.

II. INTERROGATORIES

1. Provide the following information for all persons involved in the processing of

applications for automobile loans for LaSalle Northwest National Bank customers: full name;

present or last known home and business addresses and telephone numbers; whether presently

employed by LaSalle Northwest National Bank; all job title(s) at LaSalle Northwest National


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Bank and dates during which each job was held; if not presently employed by LaSalle Northwest

National Bank, Social Security number and exact date of birth.

2. State the number of 50 people who satisfy the following criteria:

a. They purchased an automobile;




household purposes;




part 433.

3. Provide the following information for all persons who had any involvement in the

origination or servicing of the Brown loan: full name; present or last known home and business

addresses and telephone numbers; whether presently employed by LaSalle Northwest National

Bank; all job title(s) at LaSalle Northwest National Bank and dates during which each job was

held; if not presently employed by LaSalle Northwest National Bank, Social Security number and

exact date of birth.

4. Provide the following information for all persons involved in any dealings between

State Farm agents and LaSalle Northwest National Bank: full name; present or last known home

and business addresses and telephone numbers; whether presently employed by LaSalle

Northwest National Bank; all job title(s) at LaSalle Northwest National Bank and dates during

which each job was held; if not presently employed by LaSalle Northwest National Bank, Social

Security number and date of birth.

5. Provide the name and address of each State Farm agent who refers business to LaSalle

Northwest National Bank.


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6. Describe all forms of compensation paid to or received by State Farm or its agents in

connection with the referral of business to LaSalle Northwest National Bank.

7. Identify all communications concerning any loan referred by a State Farm agent, or the

referral of business by State Farm agents, between LaSalle Northwest National Bank and any

regulatory or law enforcement or consumer protection agency (including any state Attorney

General's office), Better Business Bureau, or other public or private agency which receives

consumer complaints.

8. State the number of automobile loans held by LaSalle Northwest National Bank during

each of the last five years and the number of these that were referred by State Farm agents.

9. Identify all officers and directors of LaSalle National Corporation, LaSalle National

Bancorp, Inc., LaSalle National Bank, LaSalle National Trust, N.A., LaSalle Community

Bancorp, Inc., and ABN AMRO North America, Inc.

10. If your response to any of the requests for admissions is anything other than an

unqualified admission, please explain the basis for your denial.

11. If you are declining to produce any document or respond to any paragraph in whole or

in part because of a claim of privilege, please: identify the subject matter, type (e.g., letter,

memorandum), date, and author of the privileged communication or information, all persons that

prepared or sent it, and all recipients or addresses; identify each person to whom the contents of

each such communication or item of information have heretofore been disclosed, orally or in

writing; state what privilege is claimed; and state the basis upon which the privilege is claimed.

12. If any document requested was, but no longer is, in your possession or subject to your

control, please state: the date of its disposition; the manner of its disposition (e.g., lost, destroyed,

transferred to a third party); and an explanation of the circumstances surrounding the disposition

of the document.

13. With respect to each expert whom you will or may call upon to give evidence in

connection with this case, please state: his name, address, telephone number, occupation, and

current employment experience, and any other matters which you contend qualify him as an


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expert; the substance of all facts and opinions to which he could testify if called as a witness; a

summary of the grounds for each such opinion; the identification of all documents provided to or

obtained by the expert in connection with this case; the identification of all documents relied

upon by the expert as a basis for each of his opinions; the contractual arrangements for his

retention, including the amount of his compensation, whether that compensation has already been

paid, and whether any compensation is contingent on the outcome of this litigation; the name and

docket number of each judicial, administrative, or legislative proceeding in which he has testified

or otherwise (as by deposition or affidavit) given evidence within the last ten years, plus the

name of the court or other body before which the evidence was given; and the identification of

each book, article, paper, or public statement by the expert that relates to the subject matter of his

expertise.

III. REQUESTS FOR PRODUCTION OF DOCUMENTS

Please produce:

1. All documents relating to Lake Automotive.

2. All documents relating to the State Farm agent who referred the Brown transaction to

LaSalle Northwest National Bank.

3. All manuals, memoranda, guidelines, and other documents stating or describing

LaSalle Northwest National Bank's policies, procedures or practices relating to the acquisition

and servicing of automobile loans.

4. All agreements with State Farm agents relating to the referral of business.

5. The file for any transaction in which a customer:

a. Purchased an automobile;




household purposes;


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part 433.

6. All agreements between LaSalle Northwest National Bank and State Farm.

7. All documents which describe or discuss the policies and practices of LaSalle

Northwest National Bank relating to the payment of consideration to State Farm agents.

8. All agreements between State Farm agents and car dealers.

9. All agreements between LaSalle Northwest National Bank and car dealers to whom

LaSalle has paid the proceeds of automobile loans referred by State Farm agents.

10. All documents constituting or referring to communications concerning automobile

loans referred by State Farm agents between LaSalle Northwest National Bank and any

regulatory or law enforcement or consumer protection agency (including any state Attorney

General's office), Better Business Bureau, or other public or private agency which receives

consumer complaints.

11. All documents constituting or reflecting complaints from obligors or consumers

concerning LaSalle Northwest National Bank's actions with respect to automobile loans referred

by State Farm agents.

12. All documents relating to any instance in which a person other than Brown questioned

LaSalle Northwest National Bank's practices with respect to the origination of automobile loans

through State Farm agents.

13. One copy of each different form of document or instrument used by LaSalle

Northwest National Bank in connection with automobile loans referred by State Farm agents.

14. LaSalle Northwest National Bank's annual financial statements, annual reports and

semiannual and quarterly financial statements.

15. All documents relating to Brown, or which are indexed, filed or retrievable under her

name or any number, symbol, designation or code (such as a transaction number or Social


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Security number) assigned to her or her transaction or car, including but not limited to her entire

transaction file and all computer information maintained by LaSalle Northwest National Bank on

Brown.


4.6 Plaintiffs' Supplemental Interrogatories



EASTERN DIVISION


[vs.]


No 92 C 8392

PLAINTIFF'S SUPPLEMENTAL INTERROGATORIES

Plaintiff hereby requests that defendant respond to the following supplemental

interrogatories. The time period covered by this request is January 1, 1986 to the present.

Throughout this request:

1. "Northwest" includes both LaSalle Northwest National Bank and its predecessors.

2. "State Farm" includes State Farm Mutual Automobile Insurance Company, State Farm

International Services, and any other entity with the words "State Farm" in its name.

If any paragraph of this request is believed to be unduly burdensome, please contact the

undersigned and an effort will be made to remedy the problem.

3. State the name of each payee of a Northwest draft issued pursuant to the State Farm

Car Finance Plan. For each payee, state separately: the number of borrowers by year beginning

January 1, 1986; the name, address and loan number of each borrower; the name of the State

Farm agent who wrote or signed the draft; whether your records indicate that the transaction was


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a refinancing. If you wish, you may exclude payees that are banks and finance companies and

that you can determine do not also operate auto dealerships (for example, you may exclude First

Chicago Bank of Ravenswood, but not Overland Bond & Investment Company, as the latter

operates a used car lot in addition to providing financing).

ANSWER:

2. State separately for each year beginning January 1, 1986 the names and addresses of

State Farm agents who wrote or signed drafts for 100 or more Northwest loans during that year.

ANSWER:

3. State the name of each payee of a Northwest draft written or signed pursuant to the

State Farm Car Finance Plan by any of the following: Gerald Barr; Thomas Henderson; Archie

Leach; Thomas Luscombe; Raymond Mitchell; Larry Williams. For each payee, state separately:

the number of borrowers by year beginning January 1, 1986; the name, address and loan number

of each borrower; whether your records indicate that the transaction was a refinancing.

ANSWER:

4. State the name and address of every State Farm agent with respect to whom Northwest

communicated to State Farm that the agent had, might have, or should be investigated for having

a relationship (including but not limited to any "tie-in" arrangement) with any car dealer or

automobile leasing company. For each such agent, state the dates when Northwest

communicated about the agent to State Farm.

ANSWER:

5. State the name and address of any State Farm agent which Northwest requested be

removed, suspended, or terminated from the Car Finance Program or investigated by State Farm.

ANSWER:

6. State the names of any State Farm agent with respect to whom Northwest either (a)

determined not to accept loans or (b) performed any inquiry or investigation (of the agent or

loans or applications obtained through the agent) not performed with respect to each and every


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loan originated through each and every agent participating in the State Farm Car Finance

Program.

ANSWER:

7. State whether Northwest ever used or programmed a computer to monitor, check or

determine, or provide information to be used in monitoring, checking or determining, whether

State Farm agents were having or might have relationships with automobile dealers or leasing

companies. If so, describe in detail what was done and what State Farm agents were identified for

action (of any sort) or further inquiry.

ANSWER:

WHEREFORE, defendant requests this Court enter judgment on behalf of defendant and

against plaintiff on the complaint.


4.7 Plaintiff's Response to Defendant's Discovery Request



EASTERN DIVISION


[vs.]


No 92 C 8392

PLAINTIFF'S RESPONSE TO FIRST DISCOVERY

REQUEST OF LASALLE NORTHWEST NATIONAL BANK

Plaintiff Georgia Brown responds to the First Discovery Request of LaSalle Northwest

National Bank ("LNNB") as follows:


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GENERAL OBJECTIONS

1. Plaintiff objects to the requests to the extent that they seeks documents which are

protected from disclosure by the attorney-client privilege, the attorney work-product doctrine, or

any other applicable privilege, rule or doctrine.

2. Plaintiff objects to the requests to the extent they are unduly burdensome and

oppressive and intended merely to harass plaintiff. Plaintiff also objects to the requests to the

extent they seek documents which are irrelevant and not calculated to lead to the production of

admissible evidence.

3. Plaintiff objects to the Definitions and Instructions as overbroad and burdensome,

and to the extent that they attempt to impose obligations on plaintiff which are greater than those

imposed by the Federal Rules of Civil Procedure.

INTERROGATORY

RESPONSES SUBJECT TO OBJECTIONS

1. Identify each individual the Plaintiff expects to call at trial as an expert witness.

With respect to each person so identified:

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