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U.S. BANK NATIONAL ASSOCIATION v. EMC-LINCOLNSHIRE

August 28, 2003

U.S. BANK NATIONAL ASSOCIATION, PLAINTIFF
v.
EMC-LINCOLNSHIRE, LLC, DEFENDANT



The opinion of the court was delivered by: Harry Leinenweber, District Judge

MEMORANDOM OPINION AND ORDER

Before the Court is Defendant EMC-Lincolnshire, LLC's ("EMC") motion seeking dismissal or, alternatively, a stay of this action. For the reasons stated below, the Motion to Dismiss is denied, but the Motion to Stay is granted.

I. BACKGROUND

On January 2, 2001, Plaintiff U.S. Bank National Association ("U.S. Bank") made two loans to EMC — the first for $2,162,000, the second for $725,000 (later increased to $915,000) — each evidenced by a promissory note (the "Promissory Notes"). Each Promissory Note was secured by a separate mortgage (the "Mortgages"), as well as certain collateral listed in a Commercial Security Agreement (the "CSA") consisting of (i) all furniture, fixtures, inventory, machinery and equipment identified on Exhibit B of the CSA and (ii) all building materials and fixtures, parts and appliances located or placed in, upon or adjacent to the real property identified in [ Page 2]

Exhibit C of the CSA (collectively, "Collateral"). Under the terms of each Promissory Note, EMC's failure to make any payment when due would be considered an event of default, which in turn would trigger U.S. Bank's right to, among other things, declare all outstanding principal and accrued but unpaid interest due and payable, and to take possession of and/or sell the Collateral.

In August 2002, EMC failed to make a payment when due on the second loan; in September 2002, EMC failed to make a payment when due on the first loan. Since then, EMC has not made any installment payments on either loan. At some point after September 2002, U.S. Bank declared the Promissory Notes in default. On October 30, 2002, U.S. Bank initiated a lawsuit in Illinois state court (the "State Action") against EMC, its guarantors, and certain other parties with a claimed interest in the real property covered by the Mortgages, including Aspen Grille-Lincolnshire, LLC ("Aspen Grille"), seeking foreclosure on the real property and a money judgment against EMC and its guarantors. U.S. Bank's complaint in the State Action did not specifically reference the Collateral or seek relief against it. On January 3, 2003, Aspen Grille filed a counterclaim against U.S. Bank and EMC.

The State Action is currently pending, with a trial date set for August 27, 2003. Several substantive motions have been filed thus far in the State Action, including U.S. Bank's January 22, 2003 Motion for Summary Judgment. EMC filed a Motion to Strike the [ Page 3]

Motion for Summary Judgment, which the state court granted on April 9, 2003, holding that California law applied to U.S. Bank's claims. On April 23, 2003, U.S. Bank filed an Amended Motion for Summary Judgment. On May 16, 2003, EMC filed a Cross-Motion for Summary Judgment based on certain defenses under California foreclosure law. On June 29, Aspen Grille filed its own Motion for Summary Judgment, seeking the resolution of certain priority of claims issues and foreclosure.

On July 7, 2003, U.S. Bank initiated suit in this Court (the "Federal Action") seeking (i) an injunction prohibiting EMC from using the Collateral and (ii) replevin of the Collateral. In response, EMC filed the present Motion seeking dismissal or, alternatively, a stay of this action.

II. DISCUSSION

A. Motion to Dismiss

In requesting a dismissal, EMC invokes 735 ILCS § 5/2-619(a)(3), a statute that provides for involuntary dismissal of a suit under certain circumstances. In pertinent part, that statute states that a "Defendant may, within the time for pleading, file a motion for dismissal of the action . . . [upon the ground that] there is another action pending between the same parties for the same cause." 735 ILCS § 5/2-619(a) (3). EMC contends that dismissal is appropriate because the Federal Action is between the same parties and concerns the same cause as the State Action. [ Page 4]

(Mot. at 5.) U.S. Bank responds that California law, rather than Illinois law, applies to this case by virtue of the choice-of-law clauses contained in the Promissory Notes, the CSA and the Mortgages. (Resp. at 2.) U.S. Bank further argues that, even if Illinois substantive law applied here, the criteria of § 2-619(a)(3) have not been satisfied.

In a federal diversity action such as this one, the Court must apply the substantive law of the state in which it sits, Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938); Land v. Yamaha Motor Corp., 272 F.3d 514, 516 (7th Cir. 2001), including that state's choice-of-law rules; Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Nelson v. Sandoz Pharm. Corp., 288 F.3d 954, 963 n. 7 (7th Cir. 2002). EMC argues that § 2-619(a)(3) is substantive and should be applied here. As to whether § 2-619(a)(3) should be applied, EMC is mistaken.

Although "[considerable debate exists among the courts in this district as to whether § 2-619(a)(3) is substantive or procedural," AXA Corp. Solutions v. Underwriters Reinsurance Co., 02 C 3016, 2002 WL 31260009, at *9 (N.D. Ill. Oct. 9, 2002), the Court need not reach that question, as Illinois substantive law does not govern this dispute. Rather, the parties have expressly agreed to the application of California law in the Promissory Notes ("This Note shall be governed by and construed in accordance with the laws of the State of California." (Promissory Notes at 2)), the [ Page 5]

CSA ("This Agreement shall be governed by and construed in accordance with the laws of the State of California." (CSA at 4)), and the Mortgages ("[T]his Mortgage shall be governed by, construed and enforced in accordance with the laws of the State of California, except and only to the extent of procedural matters related to the perfection and enforcement by [U.S. Bank] of its rights and remedies against the Property, which matter shall be governed by the laws of the State of Illinois." (Mortgages at 8)). Illinois state courts will respect and enforce a choice-of-law clause so long as the law chosen is not "dangerous, inconvenient, immoral, [ ] or contrary to the public policy of Illinois." Vencor, Inc. v. Webb, 33 F.3d 840, 844 (7th Cir. 1994)(internal quotation marks omitted). EMC does not contend that the ...


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