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Guaranteed Rate, Inc. v. Barr

United States District Court, N.D. Illinois, Eastern Division

December 12, 2012

GUARANTEED RATE, INC., Plaintiff,
v.
Warren BARR, Anthony Lupesco, 13th & State, LLC, Renaissant Development Group, LLC, Renaissant Management Group, Inc., Richard Borkowski, John Borkowski, Edward Borkowski, RJE Investments, LLC, Jim Carrol, Vasile Sava, Global Financing Investments, Corp., Asif Aslam, Aslam Group, Inc., Jeffery Budzik, Budzik & Dynia, LLC, Tracy Cagala, Stewart Title Guaranty Company, Robert Lattas, Lattas Law, LLC, a/k/a the Law Offices of Robert D. Lattas, Hyun Sook Kim, Abdur Rahman, Iqbal Waseem, Michelle Druska, Robert J. Jilek and Southwest Appraisal & Consulting, Inc., Defendants.

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Clayton E. Hutchinson, Richard James Cunningham, Guaranteed Rate, Inc., Louis S. Chronowski, Jr., Seyfarth Shaw LLP, Chicago, IL, for Plaintiff.

Joseph Thomas Gentleman, Law Office of Joseph Gentleman, Daniel Charles Murray, Daniel R. Bedell, Johnson & Bell, Ltd., Eric D. Stubenvoll, Jennifer Erin Lehmkuhl, John Newton Rooks, Fisher Kanaris, P.C., John David Burke, Erin Marie Eckhoff, Ice Miller LLP, Gary Thomas Jansen, Nicole D. Milos, Cremer, Spina, Shaughnessy, Jansen & Siegert, LLC, Richard A. Duffin, Duffin & Dore, LLC, Michael Charles Goode, Chicago, IL, Donald S. Rothschild, Richard John Nogal, Brian Michael Dougherty, Christopher John Novak, Goldstine, Skrodzki, Russian, Nemec & Hoff, Ltd., Burr Ridge, IL, Charles R. Franklin, Julie C. Lerman, Franklin Law Group, Northfield, IL, for Defendants.

Michelle Druska, Napervill, IL, pro se.

MEMORANDUM OPINION AND ORDER

VIRGINIA M. KENDALL, District Judge.

Plaintiff Guaranteed Rate, Inc. (" Guaranteed Rate" ) filed this suit against twenty-six individuals and entities (collectively " Defendants" ), alleging that Defendants conspired to defraud Guaranteed Rate in connection with the sale of real estate at a condominium development in Chicago, Illinois, known as Vision on State (" the Development" ). Specifically, Guaranteed Rate alleges Defendants artificially inflated sale prices of units in the Development, recruited straw buyers to fraudulently obtain financing from Guaranteed Rate, provided the straw buyers' down payments, and hired a real estate appraiser to prepare materially inaccurate appraisals as part of a scheme to eliminate the personal liability of several defendants under personal guaranties executed in connection with the construction loan used to finance the Development.

Defendants Robert D. Lattas and Lattas Law, LLC d/b/a Law Office of Robert D. Lattas (collectively " Lattas" ) served as counsel for Defendant 13th & State, LLC (" 13th & State" ), the seller of the condominium units in the Development. Defendants RJE Investments, LLC, Richard Borkowski, John Borkowski, and Edward Borkowski (collectively " the RJE Defendants" ) are members of 13th & State. Defendant Warren Barr (" Barr" ) is a real estate developer in Illinois and owner of entity Defendants Renaissant Development Group, LLC, and Renaissant Management Group, Inc. (collectively " Renaissant" ). Lattas and the RJE Defendants move separately to dismiss Count I of Guaranteed Rate's Amended Complaint. Additionally, Barr moves to set aside the Order of Default entered against him on October 30, 2012,[1] and various Defendants,

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including Lattas and the RJE Defendants, move to dismiss the state law claims asserted against them.[2] For the reasons stated below, Lattas and the RJE Defendants' Motions to Dismiss Count I are granted, and Count I of Guaranteed Rate's Amended Complaint is dismissed in its entirety. As Count I represents the sole basis for this Court's federal jurisdiction, the Court relinquishes jurisdiction over the remaining state law claims asserted in Counts II through XX of the Amended Complaint. The Court chooses to not exercise its supplemental jurisdiction over the remaining state law claims and therefore the motions to dismiss state law claims are therefore denied for lack of jurisdiction, and Guaranteed Rate's Amended Complaint is dismissed in its entirety and must be brought in the state court. Barr's motion to set aside the Court's Order of Default is also granted.

STATEMENT OF FACTS

The following facts are taken from Guaranteed Rate's Amended Complaint and are assumed to be true for the purposes of this Motion to Dismiss. See Voelker v. Porsche Cars North America, Inc., 353 F.3d 516, 520 (7th Cir.2003). All reasonable inferences are drawn in favor of Guaranteed Rate, the non-moving party. See Killingsworth v. HSBC Bank, 507 F.3d 614, 618 (7th Cir.2007) (citing Savory v. Lyons, 469 F.3d 667, 670 (7th Cir.2006)).

I. The Development

On or about September 30, 2005, Defendant 13th & State, LLC (" 13th & State" ) obtained a construction loan (" the Loan" ) in the amount of $55,725,130 from IndyMac Bank, F.S.B. (" the Bank" ) to construct the Vision on State Development at 1255 S. State Street in Chicago, Illinois. (Pl. Am. Complaint, ¶ 33.) Defendants Warren Barr, Jim Carrol, Richard Borkowski, John Borkowski, and Edward Borkowski (collectively, " the Guarantor Defendants" ) each executed a personal guaranty in favor of the Bank as security for the Loan. ( Id. ¶ 34.) As of November 30, 2007, 180 residential units in the Development had been sold or were under contract. ( Id. ¶ 37.) Seventy-three units remained unsold (" the Unsold Units" ), leaving the Guarantor Defendants exposed to millions of dollars in personal liability. ( Id. )

II. The Alleged Scheme

In November of 2007, the Guarantor Defendants, Lattas, and Defendant Asif Aslam (" Aslam" ) devised a scheme to sell Unsold Units in the Development by recruiting straw buyers to purchase the units at artificially inflated prices ( Id. ¶¶ 39-40.) The excess revenue generated by selling the Unsold Units was to be funneled to Aslam and Defendant Aslam Group, Inc. (" Aslam Group" ), and used to provide illegal incentives for the would-be buyers, including supplying the buyers'

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down payments, mortgage payments, and homeowner's association assessments. ( Id. ¶¶ 41-42.)

In early December of 2007, the Guarantor Defendants approached Defendants Global Financing Investments, Corp., and its owner, Vasile Sava (collectively, " GFI" ), to have the Unsold Units relisted at inflated prices predetermined by the Guarantor Defendants and Aslam. ( Id. ¶ 46.) On December 9, 2007, GFI, at the direction of and in cooperation with the Guarantor Defendants, Aslam, and Lattas, delisted the 73 Unsold Units from the Multiple Listing Service (" the MLS" ), a service used by real estate professionals to market properties for sale. ( Id. ¶ 47.) In January of 2008, the Guarantor Defendants caused 13th & State to enter a contract with Aslam Group, wherein Aslam agreed to recruit straw buyers to purchase the Unsold Units at inflated prices. ( Id. ¶ 49.) Barr and Aslam discussed the scheme with Defendants Anthony Lupescu (" Lupescu" ), Jeffrey Budzik (" Budzik" ), and Lattas, at various meetings in January and February of 2008. ( Id. ¶¶ 50-52.) On or about January 18, 2008, GFI relisted the Unsold Units on the MLS at the prices set by the Guarantor Defendants. ( Id. ¶ 53.) Defendant Robert J. Jilek (" Jilek" ), an employee of Southwest Appraisal & Consulting, Inc., (" Southwest Appraisal" ), provided materially inaccurate appraisals for the Unsold Units. ( Id. ¶ 59.)

III. Guaranteed Rate's Loans

Guaranteed Rate funded the purchase of three Unsold Units in the Development, Unit # 's 617, 1913, and 701. ( Id. ¶ 57.) These units were sold to Defendants Hyun Sook Kim (" Kim" ) (Unit # 617), Abdur Rahman (" Rahman" ) (Unit # 1913), and Iqbal Waseem (" Waseem" ) (Unit # 701) (collectively, " the Buyers" ) ( Id. ¶¶ 65, 91, 115.) Lupescu, Guaranteed Rate's Vice President of Mortgage Lending, was responsible for collecting information concerning whether the Buyers were going to reside in the units they sought to purchase, as well as information concerning the Buyers' assets, liabilities, income, down payments, and other financial information. ( Id. ¶¶ 144, 147.) Lupescu was also responsible for originating the loans, collecting borrower information, arranging appraisals, and ensuring all information necessary for the loans was accurate. ( Id. ¶¶ 144-45.) Defendant Michelle Druska (" Druska" ), whom Guaranteed Rate hired as a mortgage consultant, was responsible for insuring the information collected by Lupescu was true and accurate. ( Id. ¶¶ 146-48.)

Guaranteed Rate also relied on Lupescu to retain a licensed appraiser to determine whether the properties being purchased by the Buyers were adequate collateral to secure its loans. ( Id. ¶¶ 156-57.) Lupescu retained Jilek of Southwest Appraisal to conduct an appraisal and provide an appraisal report for each Unsold Unit sold to the Buyers. ( Id. ¶ 158.) In furtherance of the conspiracy and scheme to defraud Guaranteed Rate, Lupescu and Jilek agreed that Jilek's appraisal reports for Unsold Unit # 's 617, 1913, and 701 would reflect appraised values equal to or slightly higher than the purchase prices identified in the purchase contracts for those units. ( Id. ¶¶ 158-59.) Jilek conducted appraisals of Unsold Unit # 's 701, 1913, and 617 on February 28, March 6, March 14, 2008, respectively. ( Id. ¶¶ 160, 170, 179.) For each appraisal, Jilek prepared a written appraisal report containing false statements and misrepresentations that induced Guaranteed Rate into lending Pto the Buyers. ( Id. ¶¶ 161, 164, 171, 174, 180, 183.) Guaranteed Rate alleges Jilek was aware the statements contained within his appraisal reports were false and that Jilek intended for Guaranteed Rate to rely on them. ( Id. ¶¶ 168, 177, 186.)

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In January, 2008, 13th & State, by and through its agent and alter ego, Warren Barr, executed sales contracts on Unsold Unit # 's 617, 1913, and 701. ( Id. ¶¶ 188, 193, 195, 197.) In each instance, Barr was aware the Buyers had not provided $1,000 in earnest money in accordance with the contracts. ( Id. ¶ 192.) After the loans were funded,13th & State and Barr provided Aslam and Aslam Group with fees totaling $226,793.12 in connection with the sale of Unsold Unit # 's 617, 701, and 1913. ( Id. ¶ 211.) 13th & State concealed the payment of these fees by intentionally failing to disclose them in the Buyers' HUD-1 Settlement Statements (" the HUD-1 Forms" ). ( Id. ¶ 212.) Guaranteed Rate relied on the statements contained within the sales contracts and the HUD-1 Forms when it extended loans to the Buyers. ( Id. ¶¶ 203, 213.)

IV. The Buyers' Misrepresentations at Closing

The closings for Waseem's purchase of Unsold Unit # 701 and Rahman's purchase of Unsold Unit # 1913 occurred on March 13, 2008 ( Id. ¶¶ 102, 126) The closing for Kim's purchase of Unsold Unit # 617 took place on May 2, 2008. ( Id. ¶ 82.) The Buyers represented in their loan applications that the units would be occupied as principal residences and that they would provide a 10% down payment toward their purchase. ( Id. ¶¶ 70, 95, 119.) Also, at their respective closings, the Buyers executed Occupancy and Financial Status Affidavits (" the Occupancy Affidavits" ) swearing that within 60 days of the closing date, they would occupy the purchased unit as their principal residences and would continue to do so for a period of one year. ( Id. ¶¶ 82, 108, 136.) Based on these representations, Guaranteed Rate structured its loans to the Buyers as if they were for the purchase of principal residences. ( Id. ¶ 60.) However, unbeknownst to Guaranteed Rate, the Buyers also purchased other Unsold Units in the Development during the same general time period with funds provided by other lenders. On March 12, 2008, one day before the closing for Unit # 701, Waseem purchased two other Unsold Units in the Development, Unsold Unit # 's 1906 and 1908. ( Id. ¶¶ 139-40, 142.) Two weeks prior, on February 28, 2008, Waseem's wife purchased Unsold Unit # 1914, and indicated, as Waseem had with respect to Unsold Unit # 701, that the unit would be used as a principal residence. ( Id. ¶ 131.) On April 8, 2008, less than one month after closing on Unsold Unit # 1913, Rahman purchased Unit # 1813 with a loan from another lender and represented to that lender that the unit would be used as his principal residence. ( Id. ¶ 110.) On the same day Kim purchased Unsold Unit # 617, he also purchased Unsold Unit # 717 with a loan from another lender. ( Id. ¶ 85.) The Buyers did not disclose these transactions to Guaranteed Rate, and, despite their representations, never occupied Unit # 's 617, 1913 and 701 as principal residences, ( Id. ¶¶ 84-85, 107, 110, 138, 141, 143), nor did they provide a 10% down payment at closing ( Id. ¶¶ 80, 104, 129.) Instead, Budzik, the attorney representing the Buyers, obtained a cashier's check from Aslam equal to the amount of the down payments and brought them to each closing. ( Id. ¶¶ 81, 106, 130.) Guaranteed Rate alleges Lupescu and Druska knew at the time they received completed loan applications from the Buyers that the statements contained in those applications were false. ( Id. ¶¶ 150-51.) Despite this knowledge, Lupescu executed each loan application, certified the accuracy of the information contained therein, and submitted the applications to Guaranteed Rate for approval. ( Id. ¶ 152.)

The closings for the purchases of Unsold Unit # 's 617, 717, 1813, 1913, and 1914 took place at the office of Stewart Title.

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( Id. ¶¶ 77, 87, 103, 126, 134.) Cagala, a Stewart Title employee, acted as the closing agent on each purchase ( Id. ¶¶ 78, 87, 103, 127, 134.) With respect to Unsold Units # 617, 1913, and 701, Cagala also notarized each purchaser's Occupancy Affidavit. ( Id. ¶¶ 83, 109, 137.) Lattas appeared at each closing on behalf of the seller,13th & State. ( Id. ¶¶ 216, 226, 236), and executed the HUD-1 Forms for the Buyers. ( Id. ¶¶ 220, 231, 240.) Guaranteed Rate alleges Lattas knew that all disbursements made by 13th & State, including those made to Aslam and Aslam Group, had not been identified in the HUD-1 Forms. ( Id. ¶¶ 221-23, 231-33, 241-43.)

Since the dates the loans were extended to the Buyers, Unsold Unit # 's 617, 1913, and 701 have been foreclosed ...


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