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March 2, 1999


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.

Plaintiffs further aver that there is a grace period in Illinois during which they could have filed a petition to set aside the tax deed after it was issued in December. Under section 22-45 of the Property Tax Code, a party may petition the court to have a tax deed voided if the order for the deed was effectuated pursuant to a negligent error by a county employee during the period of redemption.*fn4 In its reply memorandum, at 8-9, BofA acknowledges that "BofA actually did redeem the property, but Cook County lost the check." Plaintiffs allege that Chase and BofA "withheld knowledge of the alleged attempted redemption" until April 22, 1996 (count IV at ¶ 15; count V at ¶ 30), thereby depriving them of an opportunity to make valid objections to the entry of the order for issuance of the tax deed. According to the Chois, had BofA diligently pursued its fiduciary duties, exhausting all potential remedies and keeping the Chois informed of any progress, plaintiffs could have recovered their house from Phoenix.

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 under Federal 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 936 (1968).

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