LSREF2 Nova Investments III, LLC v. Coleman ( 2015 )

Illinois Official Reports
Appellate Court
LSREF2 Nova Investments III, LLC v. Coleman,
2015 IL App (1st) 140184Appellate Court LSREF2 NOVA INVESTMENTS III, LLC, Plaintiff-Appellant, v.
Caption MICHELLE COLEMAN, Defendant-Appellee.
District & No. First District, Sixth Division
Docket No. 1-14-0184
Filed June 5, 2015
Decision Under Appeal from the Circuit Court of Cook County, No. 12-L-5297; the
Review Hon. Brigid Mary McGrath, Judge, presiding.
Judgment Affirmed.
Counsel on Johnson, Blumberg & Associates, LLC, of Chicago (Rebecca M.R.
Appeal Weininger, of counsel), for appellant.
Arends & Callahan, of Chicago (Wade B. Arends, of counsel), for
appellee.
Panel JUSTICE LAMPKIN delivered the judgment of the court, with
opinion.
Justices Hall and Rochford concurred in the judgment and opinion.
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OPINION
¶1 Plaintiff, LSREF2 Nova Investments III, LLC, appeals the circuit court’s order granting a
motion to reconsider in favor of defendant, Michelle Coleman, and dismissing plaintiff’s
complaint seeking relief under a promissory note based on the doctrine of res judicata. On
appeal, plaintiff contends the circuit court erred in dismissing its complaint where res
judicata did not bar it from pursuing a distinct remedy other than the remedy pursued in the
prior mortgage foreclosure action. Based on the following, we affirm.
¶2 FACTS
¶3 On November 19, 2007, defendant executed a mortgage and a promissory note in relation
to a commercial property located at 6456 S. Honore, in Chicago, Illinois. The promissory
note was for $304,000 and was secured by the mortgage. Plaintiff is the current holder of the
promissory note, as the apparent successor in interest of Citibank, N.A. Defendant defaulted
on her payments in 2010.
¶4 On August 18, 2010, plaintiff’s predecessor in interest filed a single-count complaint to
foreclose the mortgage seeking in its prayer for relief, inter alia, a judgment to foreclose the
mortgage and a personal judgment for a deficiency. Plaintiff’s predecessor in interest brought
the complaint in its capacity as the legal holder of the mortgage and the promissory note. The
mortgage and the promissory note were attached as exhibits to the complaint. The unpaid
balance due at the time of the filing of the foreclosure complaint was $291,813.89. The
complaint alleged that defendant was “personally liable for any deficiency.”
¶5 On November 22, 2010, the circuit court entered a judgment of foreclosure and sale in
favor of plaintiff, finding that a default by defendant, the “valid” obligee of the mortgage and
promissory note, had occurred in the payment of the principal and interest due pursuant to the
terms of said mortgage and promissory note and that “plaintiff has the right and power to
declare immediately due and payable all indebtedness secured by the mortgage.” The circuit
court further found that by virtue of the mortgage and note, plaintiff was due $322,668.35.
The judgment also provided that “[i]n case there is any deficiency in the amount [due] the
plaintiff, LSREF2 NOVA INVESTMENTS, LLC, the plaintiff shall be entitled to a
deficiency judgment against the defendant, MICHELLE L. COLEMAN, jointly and
severally, for such amount and for an execution thereon as provided by law.” In addition, the
judgment provided that “[t]he Court expressly retains jurisdiction of the property which is the
subject of this foreclosure for so long as may be necessary for the purpose of placing in
possession of the premises the holder of the Certificate of Sale or the grantees in the
Intercounty Judicial Deed, or his or their legal representatives or assigns, and reserves the
right to appoint a receiver to take possession of said premises in order to prevent impairment
of the value of the premises, manage and conserve the premises, or satisfy any deficiency
which may be found due to plaintiff.”
¶6 On January 11, 2011, a judicial sale was held and plaintiff purchased the subject property
for $100,000. On February 28, 2011, the circuit court entered an order approving the report
of the sale and distribution of the subject property, confirming the sale, and ordering
possession. The February 28, 2011, order stated that “[t]here shall be an IN REM deficiency
judgment entered in the sum of $227,416.32 with interest thereon as by statute provided
against the subject property.”
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¶7 On May 15, 2012, plaintiff filed a complaint, seeking to enforce the promissory note
against defendant. On January 2, 2013, defendant filed an answer, but, on May 15, 2013, the
circuit court granted defendant’s motion to withdraw that answer and to file a motion to
dismiss. In her motion to dismiss pursuant to section 2-619 of the Code of Civil Procedure
(Code) (735 ILCS 5/2-619 (West 2010)), defendant alleged plaintiff’s breach of contract
action was barred by the doctrine of res judicata where the circuit court already had ruled on
defendant’s liability pursuant to the promissory note. On October 30, 2013, the circuit court
denied defendant’s motion to dismiss without providing its reasoning. Then, on November
27, 2013, defendant filed a motion to reconsider the circuit court’s denial of her motion to
dismiss, arguing that the circuit court erred in its application of the law to the facts
established by the pleadings. Following a hearing,1 the motion to reconsider was granted by
the circuit court on December 19, 2013, and plaintiff’s complaint was “dismissed with
prejudice based upon res judicata.” This appeal followed.
¶8 ANALYSIS
¶9 Plaintiff contends the circuit court erred in granting defendant’s motion to reconsider and
in dismissing its complaint based on res judicata where plaintiff was entitled to pursue an
action separate from the prior foreclosure proceeding in order to adjudicate defendant’s
liability under the promissory note. In response, defendant contends plaintiff is barred from
pursuing an in personam claim under the note against her where its previously adjudged
complaint requested “[a] personal judgment for any deficiency,” where the foreclosure
judgment explicitly provided that plaintiff was “entitled to a deficiency judgment” against
defendant in the event there was a remaining deficiency, and where the order approving the
sale and distribution of the subject property stated that “[t]here shall be an IN REM
deficiency judgment entered in the sum of $227,416.32 with interest thereon as by statute
provided against the subject property.”
¶ 10 The parties dispute the proper standard of review. While we recognize that the circuit
court did grant defendant’s motion to reconsider, the ultimate ruling was the dismissal of
plaintiff’s complaint on the basis of res judicata. A section 2-619 motion to dismiss admits
the legal sufficiency of a plaintiff’s allegations but asserts the existence of an affirmative
matter that avoids or defeats the plaintiff’s claim, in this case res judicata. See Barber v.
American Airlines, Inc., 241 Ill. 2d 450, 455 (2011). This court reviews de novo a dismissal
pursuant to section 2-619 based upon the doctrine of res judicata. Morris B. Chapman &
Associates, Ltd. v. Kitzman, 193 Ill. 2d 560, 565 (2000).
¶ 11 The doctrine of res judicata prevents the multiplicity of lawsuits between the same parties
involving the same facts and issues. Turczak v. First American Bank, 2013 IL App (1st)
121964, ¶ 22. In order for res judicata to bar the same parties or their privies from litigating
causes of action that were or could have been raised in an earlier lawsuit, the moving party
must demonstrate: (1) a final judgment on the merits rendered by a court of competent
jurisdiction; (2) an identity of causes of action; and (3) an identity of the parties or their
privies. Id. ¶¶ 22-23.
¶ 12 In this case, there is no dispute regarding the presence of the first and third elements of
the doctrine of res judicata where the circuit court rendered a final judgment by granting
1
A transcript from the hearing, or an acceptable substitute, does not appear in the record on appeal.
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relief in the foreclosure action and there is an identity of the parties or privies. The parties
dispute the second element, namely, the existence of an identity of causes of action. Plaintiff
contends there was no identity to the causes of action where it sought separate, consecutive
proceedings for the adjudication of the mortgage and promissory note. In contrast, defendant
argues there was an identity of the causes of action where the pleadings demonstrate plaintiff
chose to adjudicate its rights under the note in the mortgage foreclosure action.
¶ 13 With regard to the second element of res judicata, Illinois courts apply the “transactional
test” to determine the identity of causes of action. River Park, Inc. v. City of Highland Park,
184 Ill. 2d 290, 310 (1998). Pursuant to the transactional test, separate claims are considered
as part of the same cause of action, even without substantial overlap in the evidence, as long
as the claims “arise from a single group of operative facts, regardless of whether they assert
different theories of relief.” Id. at 311.
¶ 14 Based on the record before us, we conclude that the circuit court properly dismissed
plaintiff’s complaint based on res judicata. In the foreclosure action, plaintiff sought to
foreclose on defendant’s property, but also explicitly sought a personal deficiency judgment
against defendant. Plaintiff sought the personal deficiency judgment based on defendant’s
obligations under both the promissory note and the mortgage. Pursuant to section 15-1508(e)
of the Illinois Mortgage Foreclosure Law (Foreclosure Law) (735 ILCS 5/15-1508(e) (West
2010)), with “any order confirming a sale pursuant to the judgment of foreclosure, the court
shall also enter a personal judgment for deficiency against any party (i) if otherwise
authorized and (ii) to the extent requested in the complaint and proven upon presentation of
the report of sale in accordance with Section 15-1508.” Therefore, section 15-1508(e) of the
Foreclosure Law allowed such a personal money judgment to be entered against defendant in
the foreclosure action and allowed plaintiff to enforce and collect it to the same extent and
manner applicable to any money judgment.2
¶ 15 Furthermore, the foreclosure judgment order entered against defendant stated that
plaintiff would be entitled to a deficiency judgment after the sale of the property and be
allowed to execute upon such judgment in the event there was a “deficiency amount [due].”
Following the judicial sale, there was such a “deficiency amount” due plaintiff for
$227,416.32 plus interest. We recognize that the circuit court’s February 28, 2011, order
confirming the sale did not provide for an in personam deficiency judgment but for an in rem
one; however, the fact that plaintiff did not obtain an in personam deficiency judgment, as
requested in its foreclosure complaint, does not preclude the application of res judicata
principles to the suit here. See In re Liquidation of Legion Indemnity Corp., 373 Ill. App. 3d
969, 974 (2007) (Res judicata bars not only what was actually decided in the first action but,
also, whatever could have been decided.).
¶ 16 In this action, plaintiff seeks to recover the amount of the deficiency as adjudicated in the
foreclosure action from defendant. Although plaintiff contends the current action is brought
strictly on the promissory note, the underlying complaint sought to recover from defendant
the deficiency which resulted from the foreclosure of the mortgage in the amount determined
in the order confirming the sale. The question before this court for res judicata purposes is
whether the claim raised in the underlying lawsuit could have been resolved in the prior
2
In the foreclosure action, the circuit court specifically found defendant was personally served with
the foreclosure complaint and, thus, the provisions of section 15-1508(e) of the Foreclosure Law were
fully applicable and authorized the circuit court to enter a personal deficiency judgment.
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lawsuit. The answer is yes. In the foreclosure action, plaintiff sought to recover any amount
not covered by the foreclosure sale against defendant as provided by section 15-1508(e)
based on plaintiff’s default on the mortgage and the promissory note. In the claim underlying
this appeal, plaintiff again sought recovery based on the same default by defendant on the
note and recovery of the amount of the deficiency as determined by the order confirming the
sale in the foreclosure action. We, therefore, conclude that plaintiff’s claim as alleged in the
complaint before us and its claim for a personal deficiency judgment in the foreclosure suit
arise from a single group of operative facts–the deficiency which resulted from after the
foreclosure sale based on plaintiff’s default–albeit on different causes of action against
defendant. As a result, plaintiff’s claim is barred by the doctrine of res judicata.
¶ 17 Our conclusion does not conflict with the holding in Farmer City State Bank v.
Champaign National Bank, 138 Ill. App. 3d 847 (1985). In that case, Farmer City State Bank
made a loan of $60,000 to John and Evelyn Henry in return for a promissory note.
Champaign National Bank executed a mortgage to secure the loan made by Farmer City State
Bank and a second mortgage secured by another promissory note for a loan of $345,000.
When a default occurred, Farmer City State Bank sought and obtained a default by
confession against the Henrys on the $60,000 promissory note. Farmer City State Bank then
filed an action seeking to foreclose on both mortgages which resulted in deficiency
judgments against the Henrys. Id. at 848-49.
¶ 18 The relevant issue on appeal was the Henrys’ contention that the foreclosure court
impermissibly increased the amount of the judgment entered in the initial suit on the
promissory note because the deficiency decree allocated the attorneys fees and costs
associated with collecting the debts to the $60,000 note. The court in Farmer City State Bank
found the foreclosure court did not impermissibly increase the prior judgment and said:
“Upon default, a mortgagee may sue upon the note itself or bring an action to
foreclose the mortgage. [Citation.] These remedies may be pursued consecutively or
concurrently. [Citation.] Where the mortgagee takes a judgment upon the note, the
mortgage stands as security for the judgment. [Citation.] If the mortgagee then
forecloses the mortgage and obtains a deficiency judgment against the mortgagor, the
judgment on the note is merged into the second judgment.” Id. at 852.
Thus, according to Farmer City State Bank, a mortgagee may pursue a foreclosure action and
bring a lawsuit on the note consecutively or concurrently.
¶ 19 The instant case is distinguishable from Farmer City State Bank. First and foremost, the
Farmer City State Bank court did not conduct a res judicata analysis. Furthermore, plaintiff
here did not initially file suit on the promissory note like the mortgagee did in Farmer City
State Bank. Rather, here, plaintiff’s claim for a personal deficiency judgment was raised
concurrently with its request for foreclosure on the property in the foreclosure action, and a
final judgment was entered against defendant allowing for entry of a deficiency judgment
after the sale of the property. Plaintiff, having pursued its remedy for a personal deficiency
judgment in the mortgage foreclosure case, is precluded from now seeking a personal
deficiency judgment solely on the promissory note in this consecutive action.
¶ 20 Although the court in Farmer City State Bank did not address res judicata principles,
courts have relied on that decision in finding that res judicata did not bar a subsequent claim
when there was a foreclosure action and a purely in personam action at issue. See, e.g., LP
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XXVI, LLC v. Goldstein, 349 Ill. App. 3d 237 (2004); Turczak v. First American Bank, 2013
IL App (1st) 121964.
¶ 21 In Goldstein, the defendant and others had executed a promissory note and a mortgage,
but defendant had also executed a personal commercial guaranty. Upon default, a mortgage
foreclosure suit was filed which the Goldstein court described as strictly an “in rem”
proceeding. Goldstein, 349 Ill. App. 3d at 241. After obtaining relief in the foreclosure
action, including an in rem deficiency judgment, the plaintiff, who had been assigned all
interests in the note, brought suit against the defendant on the personal guaranty. The
guaranty provided that the defendant had waived any defenses to suit on the guaranty which
may be brought before or after completion of any foreclosure action. Id. at 238-39. The court
found that the in rem deficiency judgment in the foreclosure action did not bar the subsequent
suit on the personal guaranty, stating:
“The [foreclosure] action did not encompass the guaranty. Further, defendant’s rights
under the guaranty were not placed in issue or adjudicated. This action, by contrast, is
an in personam action against defendant to adjudicate his liability under the
‘Commercial Guaranty’; nothing in this action touches upon the subject matter of the
[foreclosure] action, namely, the property that was the subject of the mortgage
foreclosure. As such, this action is separate and distinct from the [foreclosure] action,
and the principle of res judicata is inapplicable to the facts of this case.” Id. at 241.
The Goldstein court found that its conclusion was supported by Farmer City State Bank,
which established precedent that a mortgagee may proceed on the note or guaranty or
foreclose on the mortgage consecutively or concurrently. Id. at 241-42.
¶ 22 The facts here are different. The instant suit is not based on a personal guaranty, but on
the promissory note that secured the mortgage. The note does not include a waiver of any
defenses to a suit thereupon. Moreover, there is no indication in Goldstein that the plaintiff
had sought a personal deficiency judgment in the foreclosure action, nor that the foreclosure
court had personal jurisdiction over the guarantor. In fact, the appellate court described the
mortgage foreclosure suit as strictly “in rem,” or on the property, and as not encompassing
the guaranty. Thus, the Goldstein court did not discuss or consider the significance of section
15-1508(e) of the Foreclosure Law. Unlike Goldstein, our defendant’s obligations under the
promissory note were contained in the foreclosure complaint and considered in the
foreclosure judgment. Plaintiff specifically sought a personal deficiency judgment and was
entitled to obtain such a judgment under section 15-1508(e) and the terms of the foreclosure
judgment. We, therefore, find Goldstein does not support a conclusion that res judicata is
inapplicable in this case.
¶ 23 In Turczak, Wells Fargo Bank and First American Bank financed the plaintiffs’ purchase
of their home. Each loan was secured by a promissory note and a mortgage, with Wells Fargo
having the first mortgage. The plaintiffs defaulted on both loans. In June 2010, Wells Fargo
filed a foreclosure action against the plaintiffs and First American Bank. Judgment for a
foreclosure and sale was entered in the amount of $408,597.92. In June 2010, during the
pendency of Wells Fargo’s foreclosure suit, First American obtained a default judgment
against the plaintiffs on its note for $80,986.93, and recorded a memorandum of judgment on
December 28, 2010. Turczak, 2013 IL App (1st) 121964, ¶¶ 4-6.
¶ 24 Before the foreclosure action was finally resolved, the plaintiffs attempted to sell the
property as a short sale, but First American Bank, through the law firm representing it, would
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not agree to the release of its mortgage until it received $6,000. The law firm informed
plaintiffs that First American Bank continued to have an enforceable mortgage. The plaintiffs
later filed a separate suit against the law firm for damages alleging it had engaged in false
and misleading conduct. Id. ¶¶ 7-9. The law firm moved to dismiss the suit arguing that it
properly asserted that First American Bank had an enforceable mortgage after the judgment
on the note because “Illinois law allows a creditor to consecutively as well as concurrently
pursue remedies on a mortgage and the note securing the mortgage.” Id. ¶ 11. The circuit
court dismissed the suit.
¶ 25 On appeal, this court, citing Goldstein and Farmer City State Bank, upheld the dismissal.
We found that the settled law allows a mortgagee to enforce the note in consecutive suits and
stated that “[f]oreclosure suits on property, quasi in rem proceedings, apply a legally distinct
remedy from an in personam proceeding on a promissory note.” Id. ¶ 33.
¶ 26 We find that Turczak is factually distinguishable from the instant case. In this case, as
previously discussed, plaintiff did not file its initial lawsuit on the promissory note. Plaintiff,
instead, filed a foreclosure action after defendant defaulted on the mortgage and the
promissory note, and that foreclosure action concurrently sought a personal deficiency
judgment against defendant. Moreover, in Turczak, this court found the facts in Skolnik v.
Petella, 376 Ill. 500 (1941), were “markedly” different. Turczak, 2013 IL App (1st) 121964,
¶¶ 25-28. Skolnik, however, has significant, relevant factual similarities to the case at hand.
¶ 27 In Skolnik, a foreclosure action was brought against the original debtors and their
assignees. The foreclosure court had personal jurisdiction over all parties, but the foreclosure
complaint sought a personal deficiency decree against only the original debtors. The court’s
foreclosure judgment included a personal deficiency decree against the original debtors, but
not the assignees. Thereafter, an action was brought against the assignees for the amount of
the remaining deficiency. On review, our supreme court found the second action was barred
by res judicata, where the foreclosure court had personal jurisdiction over the assignees and
had express statutory authority to enter a personal deficiency judgment against them in the
foreclosure action. Ill. Rev. Stat. 1939, ch. 95, ¶ 17 (preceded section 15-1508). The supreme
court found res judicata applied even where the pleadings had not raised a claim for a
personal deficiency decree against the assignees because the claim could have been brought
in that action. Skolnik, 375 Ill. at 507 (“Piecemeal litigation is not to be permitted and neither
the parties nor the courts may be twice vexed with the same cause of action.”).
¶ 28 In Turczak, this court stated that “the holding in Skolnik is consistent with res judicata
principles because the second action on the deficiency was nothing more than a do-over of
the first action on the deficiency.” Turczak, 2013 IL App (1st) 121964, ¶ 28. We find that
Skolnik is controlling here and bars plaintiff’s underlying claim as a “do-over of the first
action on the deficiency.” Id.¶ 29 In sum, where the circuit court had personal jurisdiction over defendant to enter a
personal deficiency judgment against her pursuant to section 15-1508(e) of the Foreclosure
Law based on plaintiff’s request for a personal deficiency judgment in its foreclosure
complaint, plaintiff’s subsequent claim for the amount of the deficiency as determined in the
foreclosure suit as a result of the sale of the property is barred by the doctrine of res judicata
in accordance with the relevant transactional test of River Park and the holding in Skolnik.
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¶ 30 CONCLUSION
¶ 31 We affirm the circuit court’s December 19, 2013, order dismissing the complaint with
prejudice.
¶ 32 Affirmed.
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