Organization’s Financial Difficulty Doesn’t Insulate Officers
New Developments Update
SharpThinking
No. 103 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. November 2013
Organization’s Financial Difficulty Doesn’t Insulate Officers
Just because an organizational employer is in financial trouble does not absolve its managers of potential personal liability under the Illinois Wage Payment and Collection Act, 820 ILCS 115 (“IWPCA”), if they “have discretion to pay plaintiff but cho[o]se to allocate resources elsewhere,” according to a recent decision of the Appellate Court’s Second District.
In Elsener v. Brown, 2013 IL App (2d) 120209, a limited liability company employer dismissed one of its officials as the L.L.C. was sustaining losses, triggering entity liability under a written employment agreement. After the entity failed to pay and eventually entered bankruptcy, the official sued the company president under the personal liability provisions of the IWPCA, 820 ILCS 115/13. See generally Sharp Thinking No. 95 (July 2013). The president appealed a trial court judgment against him, arguing both that as an Ohio resident he was not subject to the IWPCA and that the existence of the entity’s losses prevented personal liability.
On the first point, the appellate panel said an officer who has “little or even no physical presence in Illinois in the course of his business duties can, nonetheless, be deemed ‘in this State’” for purposes of the IWPCA. “Although defendant was physically located in Ohio, his offices there were part of the operational center of a publishing conglomerate that included multiple subsidiaries, one of which . . . had its principal place of business in Illinois, with the defendant as its president,” the court said. “Our holding recognizes the reality that today’s communications technology permits managers to achieve a virtual presence between states.”
On the merits of the personal liability claim, the panel accepted the premise that “where payment is impossible, permission is impossible” and hence managers cannot be said to “knowingly permit” the violation under the IWPCA. However, it felt impossibility was not established on the record before it. Given the views of the trial court which was affirmed, it appears that showing financial losses is insufficient. Refusing to find inability to pay solely from an income statement, that court complained of a lack of a balance sheet, information as to balances in bank accounts, and the status of lines of credit. The court also attached significance to the fact that a forbearance arrangement with the company’s major creditor had not formally divested management of authority over wage payment matters.
$109,528 Rule 9011 Sanctions Award Reduced
The $109,528 in sanctions for filing a bankruptcy on behalf of a corporation that had not properly authorized it (In re Blue Pine Group, Inc., 457 B.R. 64 (9th Cir. BAP 2011); see Sharp Thinking No. 71 (September 2012)), have been reduced to $11,000.00.
In an unpublished order, the Court of Appeals affirmed the imposition of sanctions but said that $109,528 was more than what was needed “to deter repetition of such conduct or comparable conduct by others similarly situated” under Federal Rule of Bankruptcy Procedure 9011(c)(2). In re Blue Pine Group, Inc., 2013 WL 2151387 (9th Cir. 2013).
9th Circuit Backs Wigod on HAMP Enforceability
Another federal appeals court has followed that portion of Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012) (see Sharp Thinking No. 61 (April 2012)), which holds that a lender’s offer to make a permanent mortgage modification upon completion of a Trial Period Plan (TPP) is enforceable under a state contract law theory.
Calling Wigod the “leading case on the contractual obligations of banks under TPP agreements” with reasoning that “is sound,” and finding no material difference between Illinois and California contract law, Corvello v. Wells Fargo Bank, N.A., 728 F.3d 878 (9th Cir. 2013), says that the “natural and fair interpretation of the TPP is that the servicer must send a signed Modification Agreement offering to modify the loan once borrowers meet their end of the bargain” by successfully completing the TPP as are offered under the federal Home Affordability Mortgage Program.
However, both Wigod and Corvello recognize an exception where the lender determines that the borrower is not in fact eligible for the modification program and timely informs borrower of that determination.
FIRREA Bars Suit Against Failed Bank’s Successor
Consistent with but ignoring Farnik v. FDIC, 707 F.3d 717 (7th Cir. 2013) (see Sharp Thinking No. 88 (April 2013)), another federal appeals court has held that a plaintiff’s failure to exhaust administrative remedies under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) bars suit against a failed bank’s successor for pre-receivership acts or omissions. Demelo v. U.S. Bank N.A., 727 F.3d 117 (1st Cir. 2013). Moreover, the court held that FIRREA’s bar extended not just to claims brought in a creditor capacity but also to consumer protection claims.
FDCPA § 1692b(2) Is Privacy Protection For Debtors Only
Section 1692b(2) of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692b(2), “is a privacy protection only for the consumer who supposedly owes the debt” and “is not designed to protect third parties from hearing about another person’s debts,” a federal appeals court has held.
In Todd v. Collecto, Inc., 731 F.3d 734 (7th Cir. 2013), plaintiff alleged he suffered emotional harm when a debt collector disclosed to him information about his mother’s debt during a debtor-location call. See generally Sharp Thinking No. 62 (April 2012), Nos. 63-64 (May 2012). Finding that the debtor’s son was not within the “zone of interest” protected by § 1692b(2), the court emphasized that its ruling did not apply to all portions of the FDCPA. However, with respect to a claim that the call was an “unfair practice” under 15 U.S.C. § 1692f (see generally Sharp Thinking No. 63), the court ruled that Todd had “not stated a plausible claim for relief” because the collector made no request for payment and no express or implied threat of repercussions during the call.
John T. Hundley, Jhundley@lotsharp.com, 618-242-0246