As we previously reported, among the lawsuits that have been brought by a state attorney general and a state regulator using their Dodd-Frank enforcement authority is a lawsuit initially filed by the Illinois AG in state court against a for-profit college and its owners. Under Dodd-Frank Section 1042, a state AG or regulator is authorized to bring a civil action for a violation of the Dodd-Frank prohibition of unfair, deceptive or abusive acts or practices (UDAAP).
In March 2014, the state court granted the AG’s motion to further amend her complaint to add new counts alleging that the defendants’ practices were unfair and abusive under Dodd-Frank and in May 2014, the defendants removed the case to a federal district court in Illinois.
Last week, the federal district court issued a decision denying both the defendants’ motion to dismiss and the AG’s motion asking the court to sever the claim in Count I of the amended complaint, decline to exercise supplemental jurisdiction over the claim in Count II, and remand both claims to state court.
In denying the motion to dismiss, the court rejected the defendants’ argument that Section 1042 only allows a state AG to sue on behalf of the CFPB and not on behalf of itself when it enforces provisions of Dodd-Frank Title 10. It also rejected the defendants’ argument that the Dodd-Frank UDAAP prohibition is unconstitutionally vague, observing that the provision was subject to “a lenient vagueness test” which it easily passed. Also rejected by the court were the defendants’ arguments that the AG’s enforcement of Title 10 violated the Illinois Constitution and that the AG’s claim under the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA) was insufficiently pled.
In denying the AG’s remand motion, the court rejected the AG’s argument that the facts underlying the claim in Count I, involving alleged misrepresentations and material omissions to students about the defendants’ criminal justice degree program, did not form “a common nucleus of fact” with those alleged in other counts and therefore the claim should be severed because it was outside of the court’s supplemental jurisdiction. The court labeled this argument a “nonstarter” based on the state court’s having allowed the AG to join her claims in one lawsuit.
The court also rejected the AG’s argument that because the claim in Count II raised “an issue of first impression in Illinois,” it should be decided by an Illinois state court. The court agreed that whether extending loans to borrowers without considering their ability to pay was an unfair practice under the ICFA was a novel issue of Illinois law. However, it concluded that “[g]iven Count II’s unremarkable nature, the wealth of case law interpreting the ICFA, the commonality of the claims in this suit, and the efficiency of litigating them together,” the lack of controlling precedent did not provide a basis for the court to decline to exercise supplemental jurisdiction over Count II.
