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C&R Mortgage Corp. v. Ulz

November 20, 2009

C&R MORTGAGE CORPORATION, PLAINTIFF,
v.
CONRAD ULZ, MARY ANN ULZ AND REBECCA ULZ, DEFENDANTS.



The opinion of the court was delivered by: Wayne R. Andersen United States District Court

Wayne R. Andersen District Judge

MEMORANDUM, OPINION AND ORDER

This case is before the Court on C&R Mortgage Corporation's ("C&R") appeal from a decision issued by the United States Bankruptcy Court for the Nothern District of Illinois, which held that the C&R's claim against the Estate of Conrad Ulz ("Ulz") is disallowed because the assignment of the judgment that C&R is attempting to collect is in violation of the Illinois Joint Tortfeasor Contribution Act, 740 ILCS 100/1 et. Seq. (2006) (the "Contribution Act"), which states that a "tortfeasor who settles with a claimant..is not entitled to recover contribution from another tortfeasor whose liability is not extinguished by the settlement." 740 ILCS 100/2(e) (2006). For the following reasons, the decision of the bankruptcy court is affirmed.

BACKGROUND

The facts are taken from the opinion of the United States Bankruptcy Court. In re Ulz, 401 B.R. 321 (Bankr. N.D. Ill. 2009). On May 6, 2003, New Freedom Mortgage Corp. ("New Freedom"), a residential mortgage lender, filed an action in the district court, New Freedom Mortgage Co. v. C&R Mortgage Corp., et al., No. 03 C 3027 (N.D. Ill.). New Freedom alleged that in early 2000, it had been the victim of a fraudulent scheme to induce it to make a residential mortgage loan to Sharon Heard ("Heard"). According to the complaint, New Freedom and appellant C&R, a mortgage broker, had a standing agreement under which C&R brokered loans for New Freedom. Ulz, the debtor/appellee, also brokered loans either as an employee of C&R or as an independent contractor working for C&R. Both C&R and Ulz acted as brokers on the Heard loan and were two of the alleged scheme's perpetrators.

New Freedom's amended complaint contained eight counts alleging various claims against various combinations of defendants. Ulz was named as a defendant in the common law fraud claim in Count I, the Consumer Fraud Act claim in Count II, and the RICO claim in Count IX. C&R appeared and proceeded to defend the New Freedom action, as did several other defendants. Ulz, however, did not appear, and New Freedom moved for a default order. The district court granted New Freedom's motion and entered an order defaulting Ulz on October 1, 2003.

In April 2004, New Freedom reached a settlement with C&R and the other non-defaulted defendants. Under the settlement agreement, C&R would pay New Freedom $225,000 and certain other defendants would pay a total of $60,000. In return, New Freedom would file a motion for default judgment in the amount of $307,937.48 against Ulz and then assign the judgment to C&R. C&R agreed to pay New Freedom the first $15,000 from any recovery on the assigned judgment.

On May 27, 2004, New Freedom filed a stipulation to dismiss and moved to dismiss the claims against the settling defendants. That same day, New Freedom also moved for a default judgment against Ulz and the other defendants in default. On June 3, 2004, the district court granted both motions, entering a judgment against Ulz and two other defendants, jointly and severally, for $307,937.48. The claims against the settling defendants were dismissed with prejudice.

About a week later, on June 4, 2004, New Freedom assigned its judgment against Ulz to C&R, and C&R began collection proceedings. This prompted Ulz to move to vacate the judgment. The district court denied his motion.

One week after Ulz's attempts to forestall collection of the judgment proved unsuccessful, he filed a Chapter 7 bankruptcy case. C&R commenced an adversary proceeding objecting to Ulz's discharge and, following a trial, the discharge was denied. In December 2006, the Chapter 7 trustee filed an initial report of assets, and a notice was sent to creditors fixing March 13, 2007 as the bar date for filing proofs of claim.

Only three creditors filed claims in the bankruptcy court: C&R, Mary Ann Ulz (the wife of Conrad Ulz) ("Mary Ann"), and Rebecca Ulz (the daughter of Conrad and Mary Ann) ("Rebecca"). C&R's claim is an unsecured claim for $307,937.48 based on the assigned judgment. The Ulzs objected to C&R's claim.

The bankruptcy court sustained the objection of Conrad, Mary Ann, and Rebecca Ulz. In reaching its decision, the court reasoned that, under the Illinois Contribution Act, a settling defendant cannot recover contribution from any defendant whose liability a settlement does not extinguish. In re Ulz, 401 B.R. 321, 329 (Bankr. N.D. Ill. 2009). The court explained that the settlement agreement between C&R and Ulz was not enforceable because it attempted to accomplish indirectly a reimbursement which the Contribution Act prohibits -- C&R sought contribution from Ulz in the form of the judgment assignment. Id. at 332 Consequently, the bankruptcy court held that the claim of C&R was disallowed because the assignment of the default judgment against Ulz violated the Contribution Act. Id. at 333.

C&R now appeals the bankruptcy court's decision, asserting three arguments. C&R alleges that the Contribution Act cannot be relied upon by Mary Ann or Rebecca to bar C&R's claim against Ulz because the Contribution Act does not apply to Mary Ann or Rebecca who are not joint tortfeasors. C&R also contends that Ulz is not subject to liability in tort, as required by the Contribution Act because he was found guilty of an intentional tort not covered by the Act, he was not subject to liability in tort for negligent misrepresentation, and because recovery for economic loss ...


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