Court of Appeals of Illinois, First District, Sixth Division
Appeal from the Circuit Court of Cook County. No. 12 L 5297 The Honorable Brigid Mary McGrath, Judge Presiding.
JUSTICE LAMPKIN delivered the judgment of the court, with opinion. Justice Hall concurred in the judgment and opinion. Justice Rochford dissented, with opinion.
¶1 Plaintiff, LSREF2 Nova Investments III, LLC, appeals the circuit court's order granting a motion to reconsider in favor of defendant, Michelle Coleman, and dismissing plaintiff's complaint seeking relief under a promissory note based on the doctrine of res judicata. On appeal, plaintiff contends the circuit court erred in dismissing its complaint where res judicata did not bar it from pursuing a distinct remedy other than the remedy pursued in the prior mortgage foreclosure action. Based on the following, we reverse and remand for further proceedings.
¶3 On November 19, 2007, defendant executed a mortgage and a promissory note in relation to a commercial property located at 6456 S. Honore, in Chicago, Illinois. The promissory note was for $304, 000 and was secured by the mortgage. Plaintiff is the current holder of the promissory note, as the apparent successor in interest of Citibank, N.A.
¶4 On August 18, 2010, plaintiff's predecessor in interest filed a single-count complaint to foreclose the mortgage seeking in its prayer for relief, inter alia, a judgment to foreclose the mortgage and a personal judgment for a deficiency. The mortgage and the promissory note were attached as exhibits to the complaint. On November 22, 2010, the circuit court entered a judgment of foreclosure and sale in favor of plaintiff, finding that a default had occurred in the payment of the principal and interest due pursuant to the terms of said mortgage and note and that "plaintiff has the right and power to declare immediately due and payable all indebtedness secured by the mortgage." The circuit court further found that by virtue of the mortgage and note, plaintiff was due $322, 668.35. The judgment also provided that "[i]n case there is any deficiency in the amount [due] the plaintiff, LSREF2 NOVA INVESTMENTS, LLC, the plaintiff shall be entitled to a deficiency judgment against the defendant, MICHELLE L. COLEMAN, jointly and severally, for such amount and for an execution thereon as provided by law." In addition, the judgment provided that "[t]he Court expressly retains jurisdiction of the property which is the subject of this foreclosure for so long as may be necessary for the purpose of placing in possession of the premises the holder of the Certificate of Sale or the grantees in the Intercounty Judicial Deed, or his or their legal representatives or assigns, and reserves the right to appoint a receiver to take possession of said premises in order to prevent impairment of the value of the premises, manage and conserve the premises, or satisfy any deficiency which may be found due to plaintiff."
¶5 On January 11, 2011, a judicial sale was held and plaintiff purchased the subject property for $100, 000. On February 28, 2011, the circuit court entered an order approving the report of the sale and distribution of the subject property, confirming the sale, and ordering possession. The February 28, 2011, order stated that "[t]here shall be an IN REM deficiency judgment entered in the sum of $227, 416.32 with interest thereon as by statute provided against the subject property."
¶6 On May 15, 2012, plaintiff filed a complaint, seeking to enforce the promissory note against defendant. On January 2, 2013, defendant filed an answer, but, on May 15, 2013, the circuit court granted defendant's motion to withdraw that answer and to file a motion to dismiss. In her motion to dismiss pursuant to section 2-619 of the Code of Civil Procedure (Code) (735 ILCS 5/2-619 (West 2010)), defendant alleged plaintiff's breach of contract action was barred by the doctrine of res judicata where the circuit court already had ruled on defendant's liability pursuant to the promissory note. On October 30, 2013, the circuit court denied defendant's motion to dismiss without providing its reasoning. Then, on November 27, 2013, defendant filed a motion to reconsider the circuit court's denial of her motion to dismiss, arguing that the circuit court erred in its application of the law to the facts established by the pleadings. Following a hearing,  the motion to reconsider was granted by the circuit court on December 19, 2013, and plaintiff's complaint was "dismissed with prejudice based upon res judicata." This appeal followed.
¶8 Plaintiff contends the circuit court erred in granting defendant's motion to reconsider and in dismissing its complaint based on res judicata where plaintiff was entitled to pursue an action separate from the prior foreclosure proceeding in order to adjudicate defendant's liability under the promissory note. In response, defendant contends plaintiff is barred from pursuing an in personam claim under the note against her where its previously adjudged complaint requested "[a] personal judgment for any deficiency, " where the foreclosure judgment explicitly provided that plaintiff was "entitled to a deficiency judgment" against defendant in the event there was a remaining deficiency, and where the order approving the sale and distribution of the subject property stated that "[t]here shall be an IN REM deficiency judgment entered in the sum of $227, 416.32 with interest thereon as by statute provided against the subject property."
¶9 The parties dispute the proper standard of review. While we recognize that the circuit court did grant defendant's motion to reconsider, the ultimate ruling was the dismissal of plaintiff's complaint on the basis of res judicata. A section 2-619 motion to dismiss admits the legal sufficiency of a plaintiff's allegations but asserts the existence of an affirmative matter that avoids or defeats the plaintiff's claim, in this case res judicata. See Barber v. American Airlines, Inc., 241 Ill.2d 450, 455 (2011). This court reviews de novo a dismissal pursuant to section 2-619 based upon the doctrine of res judicata. Morris B. Chapman & Associates, Ltd. v. Kitzman, 193 Ill.2d 560, 565 (2000).
¶10 The doctrine of res judicata prevents the multiplicity of lawsuits between the same parties involving the same facts and issues. Turczak v. First American Bank, 2013 IL App (1st) 121964, ¶ 22. In order for res judicata to bar the same parties or their privies from litigating causes of action that were or could have been raised in an earlier lawsuit, the moving party must demonstrate (1) a final judgment on the merits rendered by a court of competent jurisdiction; (2) an identity of causes of action; and (3) an identity of the parties or their privies. Id. ¶ 22-23. There is no dispute that the circuit court rendered a final judgment by granting relief in the foreclosure action or that there is an identity of the parties or privies. The parties dispute the second element, namely, the existence of an identity of causes of action. Plaintiff contends there was no identity to the causes of action where it sought separate, consecutive proceedings for the adjudication of the mortgage and note. In contrast, defendant argues there was an identity of the causes of action where the pleadings demonstrate plaintiff chose to adjudicate its rights under the note in the mortgage foreclosure action.
¶11 With regard to the second element of res judicata, Illinois applies the "transactional test" to determine the identity of causes of action. River Park, Inc. v. City of Highland Park, 184 Ill.2d 290, 310 (1998). Pursuant to the transactional test, separate claims are considered as part of the same cause of action, even without substantial overlap in the evidence, as long as the claims "arise from a single group of operative facts, regardless of whether they assert different theories of relief." Id. at 311.
¶12 It is well settled that "[u]pon default, a mortgagee may sue upon the [promissory] note itself or bring an action to foreclose the mortgage. [Citation.] These remedies may be pursued consecutively or concurrently." Farmer City State Bank v. Champaign National Bank, 138 Ill.App.3d 847, 852 (1985). In LP XXVI, LLC v. Goldstein, 349 Ill.App.3d 237 (2004), the Second District applied the transactional test to determine whether res judicata barred the subsequent filing of a claim under a guaranty after already having received a judgment on a foreclosure complaint. This court advised:
"At first blush, a transactional analysis may appear to lead to the conclusion that the action on the guaranty is the same cause of action as the mortgage foreclosure, because the note, mortgage, and guaranty were all executed concurrently and, apparently, as components of a related deal. Such a result, however, overlooks the practical aspects of the interrelated transactions comprising the execution of the note, mortgage, and guaranty, as well as long-settled precedent, and reduces the transactional analysis to the most cursory and formalistic level. The note was executed to provide capital, the mortgage to secure the note. While the transactions are related, we do not believe that their mere proximity in time and the overlap of some of the parties render them a single transaction, especially in light of the purpose of each of the transactions." Id. at 240-41.
¶13 Generally, Illinois courts held that a mortgage foreclosure action was an in rem proceeding that adjudicated only the interests in the property subject to the mortgage, while an action to enforce a promissory note or guarantee was an in personam action against the person or entity. Id. However, in ABN AMRO Mortgage Group, Inc. v. McGahan, 237 Ill.2d 526, 538 (2010), the supreme court clarified that a mortgage foreclosure suit is a quasi in rem action because it involves both an action against real property as well as a monetary claim for personal liability. Nevertheless, this court, in Turczak v. First American Bank, 2013 IL App (1st) 121964, ¶ 33, instructed that "ABN AMRO does not alter the ability to bring a separate suit on the promissory note, which remains a purely in personam proceeding." That said, while the holder of a note secured by a mortgage may pursue remedies ...