United States District Court, N.D. Illinois
March 30, 2004.
UNITED STATES OF AMERICA, Plaintiff,
ANTHONY KARAMUZIS, DEPAUL UNIVERSITY, and the ILLINOIS STUDENT ASSISTANCE COMMISSION, Defendants
The opinion of the court was delivered by: SAMUEL DER-YEGHIAYAN, District Judge
This matter is before the court on Defendant Anthony G. Karamuzis'
("Karamuzis") motion to dismiss. For the reasons stated below we deny the
motion to dismiss.
Plaintiff United States of America alleges that Karamuzis applied to
the U.S. Department of Education ("UDE") for a federal direct
consolidation loan application and promissory note to consolidate his
school loans totaling approximately $46,000.
Plaintiff alleges that Karamuzis used the loans to finance his legal
education. After the UDE purchased Karamuzis' loan from DePaul University
("DePaul"), DePaul sent a promissory note to Karamuzis marked "paid in
full." UDE also purchased a loan from the Illinois Student Assistance
Commission ("Commission") and the Commission sent a promissory note to
Karamuzis marked "paid in full." Plaintiff's allege that Karamuzis never
made a single payment to UDE on the consolidated loan and in May of 2001
Karamuzis filed a claim for injunctive relief to prevent the UDE from
taking action against Karamizis for non-payment. On May 6, 2002 Judge
Leinenweber entered a declaratory judgment indicating that no valid
contract existed between Karamuzis and UDE and prohibiting the UDE from
attempting to enforce or collect the subject loan. Plaintiff alleges that
on August 8, 2002 Karamuzis contacted DePaul and indicated that he would
not sign a new promissory note to DePaul and indicated that he would not
repay the amount of the loan even if DePaul took the loan back from UDE.
Plaintiff's contend that Karamuzis has not made full payment of his law
school loans to UDE, DePaul, or the Commission. Plaintiff's bring the
instant action based upon the doctrine of unjust enrichment.
In ruling on a motion to dismiss, the court must draw all reasonable
that favor the plaintiff, construe the allegations of the complaint
in the light most favorable to the plaintiff, and accept as true all
well-pleaded facts and allegations in the complaint. Thompson v.
Illinois Dep't of Prof'l Regulation, 300 F.3d 750, 753 (7th Cir.
2002); Perkins v. Silverstein, 939 F.2d 463, 466 (7th Cir.
1991). The allegations of a complaint should not be dismissed for a
failure to state a claim "unless it appears beyond doubt that the
plaintiff can prove no set of facts in support of his claim which would
entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46
(1957). Nonetheless, in order to withstand a motion to dismiss, a
complaint must allege the "operative facts" upon which each claim is
based. Kyle v. Morton High School, 144 F.3d 448, 444-45 (7th
Cir. 1998); Lucien v. Preiner, 967 F.2d 1166, 1168 (7th Cir.
1992). The plaintiff need not allege all of the facts involved in the
claim and can plead conclusions. Higgs v. Carter, 286 F.3d 437,
439 (7th Cir. 2002); Kyle, 144 F.3d at 455. However, any
conclusions pled must "provide the defendant with at least minimal notice
of the claim," Id, and the plaintiff cannot satisfy federal
pleading requirements merely "by attaching bare legal conclusions to
narrated facts which fail to outline the bases of [his] claim."
Perkins, 939 F.2d at 466-67.
Karamuzis argues that we lack subject matter jurisdiction because Judge
Leinenweber held that the only basis for jurisdiction in the case before
him was the Higher Education Act in 20 U.S.C. § 1087 and that the Act
was not applicable because there was no binding contract between
Karamuzis and UDE. Plaintiff contends that we have subject matter
jurisdiction under 28 U.S.C. § 1345 and 28 U.S.C. § 1355. We do
not agree that 28 U.S.C. § 1355 is applicable because it provides exclusive
jurisdiction in the federal courts for the "recovery or enforcement of
any fine, penalty, or forfeiture . . . incurred under any Act of
Congress. . . ." In the instant case Plaintiff's are limited to
equitable remedies rather than statutory remedies and Plaintiff's cannot
seek to enforce the contractual obligations of the education loans.
However, 28 U.S.C. § 1345 states that "the district courts shall have
original jurisdiction of all civil actions, suits or proceedings
commenced by the United States. . . . " The instant suit was
commenced by the United States and thus the statutory provision provides
a basis for jurisdiction. 28 U.S.C. § 1331.
II. Res Judicata
Karamuzis argues that the instant case is barred under the doctrine of
res judicata because of the May 6, 2002 order issued by Judge
Leinenweber. Under the doctrine of res judicata the parties in a
suit and their privies are prohibited from relitigating a matter that was
decided on the merits by a court of competent jurisdiction and resulted
in a final judgment on the merits. Hawxhurst v. Pettibone Corp.,
40 F.3d 175, 180 (7th Cir. 1994), The doctrine precludes relitigation of
all matters offered to support or defeat the claim in the prior
litigation and all matters that could have been offered to support or
defeat the claim. Id. The elements for res judicata are: 1)
final judgment, 2) identity of the cause of action, and 3) identities of
parties or privies in the suits. Id.
Plaintiff argues that the parties are not identical in this action and
the action before Judge Leinenweber. Plaintiff argues that the United
States is not the same as me UDE and therefore there is not an identity
of parties. However, the court notes that there is privity between
Plaintiff and UDE. Plaintiff United States has not alleged facts that
indicate that it is pursuing a separate claim in its own right. Although,
Plaintiff is not technically the same entity as the UDE, Plaintiff states
in its complaint that it is "acting on behalf of the U.S. Department of
Education," (Compl. 3). Plaintiff is properly deemed to be an agent of
the UDE claim and there is an identity of the parties.
There is also an identity of the causes of action. Res judicata applies
even if "the prior suits charged different violations of law, alleged
different facts, and sought different relief." Okoro v. Bohman,
164 F.3d 1059, 1062 (7th Cir. 1999). The doctrine of res judicata exists
under the federal common law and bars a claim in a subsequent suit "if
the claim on which it is based arises from the same incident, events,
transaction, circumstances, or other factual nebula as a prior suit that
had gone to final judgment." Id. The same cause of action res
judicata test "does not require identity of legal theory or of facts
. . .," Id. Even though the suit before Judge Leinenweber
concerned legal theories and the instant suit is based upon equitable
theories, the facts, events, transactions, and circumstances are the same
in this case and the case before Judge Leinenweber.
In this case although the doctrine of res judicata is
apparently applicable we must not forget that the doctrine is an
equitable doctrine. Walsh v. International Longshoremen's Assoc,
AFL-CIO, Local, 799, 630 F.2d 864, 875 (1st Cir. 1980). Since the
doctrines of equity are based on fundamental notions of fairness a court
"is not bound to give res judicata effect to a previous judgment if an
inequitable situation would thereby result." Id; see also Stewart v.
Anderson, 2000 WL 1741885, at *4 (N.D. Ill. 2000)(stating that a
"[c]ollateral estoppel . . . is an equitable doctrine subject to
limitations where fairness and justice require."). The instant case is
exactly the type of case that the equitable principles are intended to
address. Karamuzis does not deny that he received his legal education and
not deny that he has not paid for his legal education. Based on a
technicality another court ruled that no contract existed between UDE and
Karamuzis. We are not disagreeing with Judge Leinenbewer's ruling which
merely found that there is no contract between UDE and Karamuzis.
However, that does not mean that within the spectrum of quasi-legal
remedies and equitable remedies that the United States should not be able
to recover the money loaned to Karamuzis that made his education
possible. The doctrine of res judicata is based upon the equitable
notions. It is not logical that such a doctrine could be used to bar
Plaintiff from recovering funds that Karamuzis concedes are owed to it in
Karamuzis apparently received a good education at DePaul while the
government funded his tuition because he is now able to employ his legal
knowledge to try and cheat the government out of its rightful repayment
based upon a technicality. Plaintiff's have alleged that Karamuzis has
even gone as far as to tell DePaul that he would not repay the amount of
the loan even if DePaul took the loan back from UDE, although he had a
promissory note with DePaul for repayment. Karamuzis' callous disregard
for what is just and right provides a poor example of those engaged in
the legal profession. Through the generosity of the federal government
and associations such as the Illinois Student Assistance Commission
Karamuzis obtained financial assistance for law school. Now that he has
his degree he apparently has no qualms about walking away from the
sources of his good fortune and ignoring his moral and equitable
III. Compulsory Counterclaim
Karamuzis argues that the instant unjust enrichment claims arise out of
the same transaction and occurrence as in the suit before Judge
Leinenweber. Karamuzis thus argues that the claims in the instant action
were compulsory counterclaims pursuant to Federal Rule of Civil Procedure
13(a) and therefore Plaintiff is barred from presenting the claims in the
instant action. However, the "usual method by which [Rule 13(a)] is
enforced is simply by the plaintiff's pleading res judicata in the
defendant's suit." Asset Allocation and Mgmt. Co. v. Western
Employers Ins. Co., 892 F.2d 566, 572 (7th Cir. 1989). As we
indicated above, the doctrine of res judicata is not applicable
and therefore, we deny Karamuzis' motion to dismiss.
Based on the foregoing analysis we deny the motion to dismiss.
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