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CHOI v. CHASE MANHATTAN MORTG. CO.
March 2, 1999
JIN OK CHOI AND WON HYE CHOI, PLAINTIFFS,
CHASE MANHATTAN MORTGAGE CO., TRANSAMERICA REAL ESTATE TAX SERVICE, INC., AND BANK OF AMERICA, FSB, DEFENDANTS.
The opinion of the court was delivered by: Moran, Senior District Judge.
Plaintiffs Jin Ok Choi and Won Hye Choi (the Chois) seek to
recover damages for economic and emotional injuries resulting
from the sale of their home for unpaid taxes. The Chois allege
that defendants breached contractual duties (counts I-III) and
committed various torts (counts IV-VI) when they provided
erroneous tax information, failed to pay the real estate taxes
owed on the property, and failed to effectuate a redemption while
there was still time. In count VII, the Chois request a
declaratory judgment regarding the appropriate allocation of an
award from the Cook County Indemnity Fund. We have before us
defendants' motions to dismiss: Chase moves to dismiss counts I,
IV and VII; Transamerica moves to dismiss count VI*fn1; and Bank
of America moves to dismiss counts III and V.*fn2 In deciding a
motion to dismiss we assume the truth of plaintiffs' well-pleaded
facts and draw all reasonable inferences therefrom. Conley v.
Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101, 2 L.Ed.2d 80
(1957). Defendants have a high burden to meet and the complaint
will only be dismissed if it is clear that plaintiffs can prove
no set of facts entitling them to relief. Hi-Lite Prods. Co. v.
American Home Prods. Corp., 11 F.3d 1402, 1405 (7th Cir. 1993).
For the following reasons, defendants' motions are granted in
part and denied in part.
The third contract, dated July 19, 1994, is the "Interim
Sub-Servicing Agreement" (interim agreement)*fn3 between Bank of
America (BofA) and Margaretten under which BofA agreed to service
and administer certain loans, including the plaintiffs' mortgage.
Again, the Chois aver that they are third-party beneficiaries
under the interim agreement (count III at ¶ 15). Pursuant to the
agreement, BofA collected the plaintiffs' monthly mortgage
payments, including those sums directed to the escrow account,
and was obligated to pay the "real estate taxes in accordance
with all applicable laws, agency requirements and investor
requirements" (count III at ¶ 14).
As a result of defendants' alleged failures to rectify the
delinquent tax obligations and paperwork errors, the taxes were
sold by the county to a tax purchaser, Phoenix Bond and Indemnity
Company, Inc. (Phoenix) on or about February 4, 1993 (count III
at ¶ 12). In June or July 1995, the plaintiffs informed BofA they
had received a notice indicating the real estate had been sold in
a tax sale and the redemption period would expire on October 17,
1995. The plaintiffs charge that BofA breached its obligation
under the interim agreement to effectuate a redemption during
this period. Although BofA apparently attempted to redeem the
taxes, it was ultimately unsuccessful. (am.cplt. at ¶ 13). The
chain of events leading to the loss of the Chois' home was soon
completed. On December 26, 1995, Phoenix obtained a tax deed to
the real estate, and on January 8, 1996, Phoenix filed the deed
with the Cook County Recorder of Deeds.
As a result of losing their family home the Chois have suffered
economic damages, including moving expenses, rent for housing,
damage to their credit, loss of the use of their equity, an
increased cost of financing, and the value of their property
above the amount of the outstanding mortgage. Beyond the economic
damages, plaintiffs also charge that defendants' negligent
behavior caused emotional distress and other personal injuries,
including sleeplessness, an inability to work, disruption of the
family's religious activities and an interruption in the
children's education. (counts IV, V, and VI).
There is a final chapter that is particularly relevant to count
VII. Pursuant to § 21-305 of the Property Tax Code, codified at
35 ILCS 200/21-305, the Chois filed a claim against the County
Treasurer of Cook County, Illinois (Treasurer), as trustee of a
fund (the indemnity fund) created to reimburse those who have
unjustly lost their homes as a result of tax sales. The
Treasurer, in turn, filed a third-party complaint against Chase,
alleging that Chase had failed to timely pay the property taxes
owed on the property as required by the mortgage.*fn5 After a
full hearing on the merits of the Chois' claim, the court found
that although the Chois were barred from bringing an action to
recover the property itself, they were entitled to just
compensation for their loss. A judgment was entered on July 2,
1997, against the indemnity fund in the amount of $244,000, the
fair cash value of the Chois' home at the time the deed was
transferred, plus interest and court costs. The Treasurer was
ordered, however, to deduct $125,520.85 (the amount of the
existing lien against the property in favor of Chase) and to pay
that amount jointly to Chase and Jin Ok Choi and Won Hye Choi
"unless the respondent is provided with a release of lien."
Plaintiffs subsequently filed this action in state court, #
96L16591, on December 30, 1997, asking the court to determine how
that $125,520.85 reserve should be allocated between Chase and
the plaintiffs and seeking to recover additional damages from all
three defendants. On January 29, 1998, BofA, with the agreement
of all defendants, removed this action to federal court, invoking
the court's diversity jurisdiction under 28 U.S.C. § 1332.*fn6
Resolution of the Treasurer's third-party complaint against Chase
was deferred by the state judge and is pending in state court.
a. Contract and Declaratory Judgment Claims Against Chase
Chase first argues that the entire complaint must be dismissed
Rule of Civil Procedure 12(b)(7) because plaintiffs have failed
to join a necessary party pursuant to Federal Rule 19 (Chase mem.
in sup. at 3). According to Chase, because the Chois first
pursued recovery through the indemnity fund, "plaintiffs no
longer have any claims against [Chase] because the Treasurer is
now subrogated to those claims." (Chase reply at 4). Defendant
bases this argument on the language of 35 ILCS 200/21-305(b),
which requires that the Treasurer be subrogated to the
petitioners "for all or part of the petitioner's claims against
him or her." Chase provides no support, however, for its
counter-intuitive position that by creating a means to equitably
compensate the victims of a tax sale, the Illinois legislature
actually intended to strip the victims of all subsequent rights
to complete compensation. Clearly, the language was intended (a)
to provide a procedure to reimburse the indemnity fund for monies
paid to victims, and (b) to ensure that the legally responsible
party does not have to pay twice for the same item. Our
conclusion is bolstered by the prayer for relief in the
Treasurer's third-party complaint which asks that the state court
"find the Third Party Defendant liable for any damages awarded to
Petitioners from the Indemnity Fund." Moreover, the Chois do not
dispute that the Treasurer is subrogated to their rights against
defendants up to the amount paid out of the indemnity fund. In
this diversity suit*fn7 we are considering whether the Chois are
entitled to damages above and beyond the $118,479.15 they have
already received and whether they are consequently entitled to
keep any or all of the $125,520.85 award issued jointly to the
Chois and Chase Manhattan.*fn8
Resolving issues of compulsory joinder and dismissal for
failure to join an indispensable party typically involves a
three-step process. Iron Workers Local Union No. 17 Ins. Fund
and its Trustees v. Philip Morris Inc., 182 F.R.D. 512, 516
(N.D.Ohio 1998). The court must first determine whether the
absent party is "necessary." If the party is, in fact, a "person
to be joined if feasible" as defined by the first section of
Rule19(a), the court must then consider the implications of
joinder — e.g., whether diversity jurisdiction will be destroyed
if the party is joined — under the second section of Rule 19(a).
Id. If joinder is not feasible, the court must then decide
whether that party is "indispensable" such that it would not be
fair for the litigation to go forward in his absence. Fed.
R.Civ.P. 19(b); Iron Workers, 182 F.R.D. at 517. Analysis under
Rule 19 should not be formalistic, but rather should focus on
pragmatic considerations and the factual and procedural posture
of the individual case. Provident Tradesmens Bank & Trust Co. v.
Patterson, 390 U.S. 102, 116 n. 12-117, 88 S.Ct. 733, 19 L.Ed.2d