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GE Business Financial Services Inc. v. Schiffman

January 27, 2010

GE BUSINESS FINANCIAL SERVICES INC., FORMERLY KNOWN AS MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., PLAINTIFF,
v.
ALAN T. SCHIFFMAN AND, WILLIAM PETER RIDGEWAY CROSS, DEFENDANTS.



The opinion of the court was delivered by: Samuel Der-yeghiayan, District Judge

MEMORANDUM OPINION

This matter is before the court on Defendant William Peter Ridgeway Cross' (Cross) and Defendant Alan T. Schiffman's (Schiffman) motions to dismiss. For the reasons stated below, we deny the motions to dismiss.

BACKGROUND

Plaintiff GE Business Financial Services Inc. (GE), formerly known as Merrill Lynch Business Financial Services Inc., alleges that on August 8, 2007, GE loaned IBS Cobblestone Operating, LLC (Cobblestone) $21,100,000 to purchase a 248 unit apartment complex and approximately 7.5 acres of adjacent land (Property). (Compl. Par. 5). According to GE, the loan GE made to Cobblestone (Loan) was secured by a mortgage on the Property and guaranteed by Schiffman and Cross pursuant to a guaranty dated August 8, 2007 (Guaranty). (Compl. Par. 5-6).

Under the terms of the Guaranty, Defendants allegedly guaranteed "the full and prompt payment" of the Indebtedness, which was defined under the Guaranty as "(1) [sic] $2,110,000 (10% of the outstanding loan); (b) the interest reserve of $500,000; and (c) the $600,000 release price, or a total of $3,210,000.00, plus Enforcement Costs with respect to this action." (Compl. Par. 7, 15). In addition, in the event of a default on the Loan, Defendants purportedly agreed to pay any deficiency resulting from the foreclosure and sale of the Property, "notwithstanding the fact that recovery of said deficiency against [Cobblestone] would not be allowed by applicable law." (Compl. Par. 8). The Guaranty also allegedly provided that Defendants would "pay the Indebtedness regardless of any defense, right of set-off or claims." (Compl. Par. 9). In addition, under the terms of the Guaranty, Defendants allegedly agreed to "waive any and all rights [they might] have under any anti-deficiency statute." (Compl. Par. 10). Finally, GE contends that the Guaranty provided that GE and Defendants would "irrevocably (a) submit to the non-exclusive jurisdiction of the state and federal courts having jurisdiction in the City of Chicago, County of Cook and State of Illinois, and (b) . . . waive the right to object, with respect to [any proceeding brought in any such court], that such court does not have jurisdiction over such party." (Compl. Par. 12). GE alleges that the jurisdictional waiver found in the Guaranty also included a provision stating that "nothing in [the] Guaranty shall preclude [GE] from bringing a proceeding in any other jurisdiction nor will the bringing of a proceeding in any one or more jurisdictions preclude the bringing of a proceeding in any other jurisdiction." (Compl. Par. 12).

According to GE, after Cobblestone defaulted on the loan, GE conducted a non-judicial foreclosure sale of the Property in Georgia on January 6, 2009, which "was advertised in the County newspaper where the [Property] is located, and [Cobblestone] and [Defendants] were given notice by mail four weeks in advance of the sale." (Compl. Par. 13). GE alleges that it bid $16,800,000 on the Property, which was $100,000 more than the appraised value, and that there were no other bidders at the sale. (Compl. Par. 14). GE contends that pursuant to the Guaranty, Defendants are liable for "the deficiency of $5,682,638.62, which is the outstanding debt of $22,482,638.62 . . . less the foreclosure sale bid of $16,800,000, 'up to, but not exceeding,' the Indebtedness, which is $3,210,000.00 plus Enforcement Costs," which means that Defendants jointly and severally owe GE $3,210,000.00 plus enforcement costs" under the terms of the Guaranty. (Compl. Par. 14). GE allegedly demanded payment of this amount from Defendants, and Defendants allegedly have not made any payment. (Compl. Par. 17). GE includes in its complaint breach of contract claims brought against Defendants. Defendants have moved to dismiss the breach of contract claims.

LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(1) (Rule 12(b)(1)) requires a court to dismiss an action when it lacks subject matter jurisdiction. United Phosphorus, Ltd. v. Angus Chemical Co., 322 F.3d 942, 946 (7th Cir. 2003). If the concern of the court or party challenging subject matter jurisdiction is that "subject matter jurisdiction is not evident on the face of the complaint, the motion to dismiss pursuant to Rule 12(b)(1) would be analyzed as any other motion to dismiss, by assuming for purposes of the motion that the allegations in the complaint are true." Id.; see also Ezekiel v. Michel, 66 F.3d 894, 897 (7th Cir. 1995)(stating that when reviewing a motion to dismiss brought under Rule 12(b)(1), this court "must accept as true all well-pleaded factual allegations, and draw reasonable inferences in favor of the plaintiff"). However, if the complaint appears on its face to indicate that the court has subject matter jurisdiction, "but the contention is that there is in fact no subject matter jurisdiction, the movant may use affidavits and other material to support the motion." United Phosphorus, Ltd., 322 F.3d at 946 (emphasis in original). For the purpose of determining subject matter jurisdiction, this court "may properly look beyond the jurisdictional allegations of the complaint and view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists." Ezekiel, 66 F.3d at 897 (quoting Capitol Leasing Co. v. Federal Deposit Insurance Corp., 999 F.2d 188, 191 (7th Cir. 1993)). The burden of proof in a Rule 12(b)(1) motion is "on the party asserting jurisdiction." United Phosphorus, Ltd., 322 F.3d at 946.

Federal Rule of Civil Procedure 12(b)(2) (Rule 12(b)(2)) directs a court to dismiss a claim for lack of personal jurisdiction. Fed. R. Civ. P. 12(b)(2). The plaintiff bears the burden of demonstrating the existence of personal jurisdiction. RAR, Inc. v. Turner Diesel, Ltd.,107 F.3d 1272, 1276 (7th Cir. 1997). For the purposes of such a motion to dismiss, the "court accepts all well-pleaded allegations in the complaint as true." Hyatt Intern. Corp. v. Coco, 302 F.3d 707, 712-13 (7th Cir. 2002).

In ruling on a motion to dismiss brought pursuant to Federal Rule of Civil Procedure Rule 12(b)(6) (Rule 12(b)(6)), a court must "take all of the factual allegations in the complaint as true" and make reasonable inferences in favor of the plaintiff. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009); Thompson v. Ill. Dep't of Prof'l Regulation, 300 F.3d 750, 753 (7th Cir. 2002). To defeat a motion to dismiss brought pursuant to Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Iqbal, 129 S.Ct. at 1949 (internal quotations omitted)(emphasis in original)(quoting in part Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

DISCUSSION

Defendants argue that the instant action should be dismissed because the court lacks personal and subject matter jurisdiction since, according to Defendants, GE elected to sue Defendants under Georgia law in the Superior Court of Fayette County, Georgia (Georgia State Court), prior to filing the instant action. Defendants also contend that GE has failed to state a claim upon which relief can be granted based upon the doctrine of res judicata and the Full Faith and Credit Clause of the United States Constitution (Full Faith and Credit Clause).

According to Defendants, on February 4, 2009, GE filed a Report of Sale and Application for Confirmation of Sale Under Power (Confirmation Application) in Georgia State Court pursuant to Official Code of Georgia Annotated § 4-14-161 (Ga. Code Ann. § 44-14-161). Pursuant to Ga. Code Ann.§ 44-14-161, "no action may be taken to obtain a deficiency judgment unless the person instituting the foreclosure proceedings . . . report[s] the sale to the judge of the superior court of the county in which the land is located for confirmation and approval." Ga. Code Ann. § 44-14-161. Under the statute, the court will confirm and approve the foreclosure sale if "it is satisfied that the property so sold brought its true market value on such foreclosure sale." Id.

Defendants state that after GE filed its Confirmation Application, GE and Defendants attended a hearing at which the Georgia State Court held that GE failed to obtain fair market value for the Property or show good cause why a resale should occur and therefore declined to confirm and approve the foreclosure sale or order a resale of the Property (Confirmation Hearing). Defendants argue that "[u]nder applicable Georgia law, GE is prohibited from seeking any deficiency judgment against [Cobblestone or Defendants] . . . [and that the instant action] should be dismissed, as the Georgia action is res judicata." (Mot. 2-3). Defendants assert that "Georgia law and the decision of the Georgia State Court governs [sic] on all matters before this court." (Mot. 3). Defendants also argue that, based upon the proceedings in the Georgia State Court, jurisdiction against Defendants "lodged in Georgia" and, as a result, this Court lacks both personal jurisdiction over Defendants and subject matter jurisdiction over the action. (Mot. 3). ...


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