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Psce, LLC v. Associated Bank

August 8, 2011


The opinion of the court was delivered by: Honorable J. Phil Gilbert U.S. District Judge


This matter comes before the Court on defendant Associated Bank, N.A.'s ("Associated") Supplemental Motion to Dismiss or, in the Alternative, for Summary Judgment (Doc. 28). Plaintiff PSCE, LLC, has responded to the motion (Doc. 32), and Associated has replied to that response (Doc. 34).

As a preliminary matter, the defendants' motion to dismiss refers to matters outside the pleadings. When such material is presented in connection with a Rule 12(b)(6) motion to dismiss, the Court may treat the motion to dismiss as a motion for summary judgment or it may exclude the additional material from consideration. See Fed. R. Civ. P. 12(d). There is an exception to this rule, however, when the additional material is something of which the Court may take judicial notice. See Menominee Indian Tribe of Wisc. v. Thompson, 161 F.3d 449, 456 (7th Cir. 1998). The Court may take judicial notice of public records, see Pugh v. Tribune Co., 521 F.3d 686, 691 n. 2 (7th Cir. 2008) (publicly reported stock price), including judicial proceedings, see Henson v. CSC Credit Services, 29 F.3d 280, 284 (7th Cir. 1994). In this case, Associated attaches only publicly filed documents from a prior state court action. The Court takes judicial notice of those documents and accordingly considers this motion as a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6).

When reviewing a Rule 12(b)(6) motion to dismiss, the Court accepts as true all allegations in the complaint. Erickson v. Pardus, 551 U.S. 89, 94 (2007) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). To avoid dismissal under Rule 12(b)(6) for failure to state a claim, a complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2).

I.Alleged Facts

This dispute arose after PSCE secured a loan from Associated in June 2007. The note associated with that mortgage (the "Note") purported to provide an interest rate of "7.750%" or "7.750% per annum." The Note further stated:

The annual interest rate for this Note is computed on a 365/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding.

In essence, Associated calculated the daily interest rate as 1/360 of the annual rate and applied it to all 365 (or 366 in leap years) days in a year. The upshot is that PSCE was effectively charged an interest rate higher than 7.75%. This interest calculation method is commonly referred to as the "365/360 method."

PSCE filed this lawsuit claiming that using the 365/360 method to impose a higher interest rate than the per annum rate stated in the Note violated the Illinois Consumer Fraud Act, 815 ILCS 505/1 et seq. (Count I) and constitutes a breach of the Note (Count II) and of the oral contract to prepare the Note using agreed upon terms (Count III). PSCE also seeks a declaration that Associated may not use the 365/360 method.

Associated now asks the Court to dismiss PSCE's claims on the basis of res judicata. It believes a state court default judgment rendered on December 2, 2010, by the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, precludes PSCE's current action. That judgment found, among other things, that PSCE had breached the terms of the Note and owed Associated $247,559.94 in accrued and unpaid interest.


The doctrine of res judicata, also known as claim preclusion, prevents relitigation of matters that were fully litigated in an earlier suit that resulted in a judgment on the merits. Groesch v. City of Springfield, 635 F.3d 1020, 1029 (7th Cir. 2011). Because of the Full Faith and Credit Act, 28 U.S.C. § 1738, federal courts must give a state court judgment the same preclusive effect that the court rendering the judgment would give it. Haber v. Biomet, Inc., 578 F.3d 553, 556 (7th Cir. 2009); Licari v. City of Chicago, 298 F.3d 664, 666 (7th Cir. 2002). Thus, when examining whether an Illinois court judgment bars a federal lawsuit because of res judicata, the Court looks to the preclusive effect an Illinois court would give the judgment in question. Groesch, 635 F.3d at 1029; Licari, 298 F.3d at 666.

Under Illinois law, res judicata applies if the prior decision (1) was a final judgment on the merits rendered by a court of competent jurisdiction, (2) involved the same parties or their privies, and (3) constituted the same cause of action as the current suit. Nowak v. St. Rita High Sch., 757 N.E.2d 471, 477 (Ill. 2001); People ex rel. Burris v. Progressive Land Developers, Inc., 602 N.E.2d 820, 825 (Ill. 1992); Groesch, 635 F.3d at 1029. In this case, PSCE challenge whether the prior state court litigation involved the same cause of action as those in this case.

Illinois uses a transactional approach to determining whether different claims constitute the same cause of action for res judicata purposes. River Park, Inc. v. City of Highland Park, 703 N.E.2d 883, 893 (Ill. 1998); see Garcia v. Village of Mt. Prospect, 360 F.3d 630, 637 (7th Cir. 2004). Under the transactional approach, "separate claims will be considered the same cause of action for purposes of res judicata if they arise from a single group of operative facts, regardless of whether they assert different theories of relief." River Park, 703 N.E.2d at 891; accord Rodgers v. St. Mary's Hosp., 597 N.E.2d 616, 621 (Ill. 1992) (res judicata bars suit if "the same facts were essential to maintain both actions" or if "a single group of operative facts gives rise to the assertion of relief"). As a corollary to this rule, Illinois observes the doctrine of merger and bar which ...

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