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Firstmerit Bank, N.A. v. Donlin Builders, Inc.

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

March 11, 2015

FIRSTMERIT BANK, N.A., successor by assignment to the Federal Deposit Insurance Corporation as Receiver for Midwest Bank and Trust Company, Plaintiff,


JOHN Z. LEE, District Judge.

Plaintiff FirstMerit Bank, N.A. ("FirstMerit"), as successor in interest to the original mortgagee Midwest Bank and Trust Company, filed a complaint in foreclosure against Defendants to collect on the delinquent loans, foreclose on the property securing the loans, and enforce Defendants Walter M. Bekta and Maureen A. Burns Bekta's personal guarantees. Defendants filed an answer, affirmative defenses, and counterclaims alleging breach of contract, breach of implied covenant of good faith and fair dealing, and violation of the Consumer Fraud Act (the "Counterclaims"). Plaintiff has moved to dismiss the Counterclaims pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6). For the reasons provided herein, the Court grants the motion and dismisses all of Defendants' Counterclaims.


The following facts from Defendants' Counterclaims are taken as true for purposes of resolving this motion to dismiss. Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008).

Defendant Donlin Builders, Inc. ("Donlin") is an Illinois corporation with its principal place of business at 8224 Queen Victoria Lane, Tinley Park, Illinois 60477. Countercls. ¶ 1. Defendant MMB Development LLC ("MMB") is an Illinois limited liability corporation with its principal office at the same location. Id. ¶ 2. Defendants Walter M. Bekta and Maureen A. Burns Bekta (together, the "Betkas") are individuals who reside at that address as well. Id. ¶¶ 3-4. The Betkas are the sole members of MMB. Id. ¶ 5. FirstMerit is a national bank with a principal place of business at 106 S. Main Street, Akron, Ohio. Id. ¶ 6. Plaintiff asserts itself to be the alleged successor by assignment to the Federal Deposit Insurance Corporation as Receiver for Midwest Bank and Trust Company ("Midwest"). Id.

In 2005, allegedly with Midwest's encouragement, the Betkas organized MMB to focus on developing commercial and mixed-use projects. Id. ¶ 10. MMB soon began to develop a project called Springfort Hall in Tinley Park, Illinois (the "Springfort Hall Project"). Id. ¶ 11. Prior to commencing the Springfort Hall Project, John Cronin of Midwest represented to Defendants that, per Federal Deposit Insurance Corporation ("FDIC") rules, any promissory notes Midwest issued had to be one-year in length; however, Midwest was able to (and would in this case) automatically renew the notes annually as long as MMB and Donlin paid the accrued interest and turned over to Midwest eighty-five percent of the proceeds from the sales of Springfort Hall's residential units. Id. ¶ 13.

In reliance upon these representations, MMB and Donlin executed two separate notes: the Donlin Note, and the MMB Note (collectively, the "Notes"). Id. ¶ 14. The Notes matured on July 31, 2011, but were not paid in full upon maturity. Id. ¶¶ 15, 25. After the July 31, 2011 maturity date, Plaintiff continued to issue monthly statements demanding interest payments. Id. ¶ 16. These monthly statements sought payment of interest at the non-default variable interest rate, not at the default interest rate provided under the Notes. Id. ¶ 17. In reliance on these monthly statements, Defendants made approximately $15, 005.91 in interest payments to Plaintiff on the Donlin Notes and $109, 710.03 on the MMB Note. Id. ¶ 18. Plaintiff accepted those payments. Id. ¶¶ 18-19. In addition, subsequent to the maturity date, Defendants made principal payments to Plaintiff on the MMB Notes in the amount of $426, 232.73, which Plaintiff accepted. Id. ¶¶ 120-21. In April 20, 2012, Plaintiff's Loan Workout Officer, Kecia Sammons, offered to decrease the non-default interest rate applicable to the MMB Note and backdate the rate decrease to March 2012. Id. ¶¶ 23-24; Ex. 1, Countercls. The e-mail did not state that the Notes were in default. Id. ¶ 24.

Based on the foregoing, Defendants believed Plaintiff would not find them in default as long as they continued to make such payments. Id. ¶ 22. But, in November 2012, after accepting payments from Defendants at the Notes' variable non-default interest rate for sixteen months after the maturity date, Plaintiff issued a notice of default. Id. ¶ 25. Plaintiff thereafter imposed late payment penalties, retroactively increased the interest rate to the default rate of 11.75%, and backdated the effective date of the rate increase to August 1, 2011. Id. ¶¶ 28-29. Defendants claim that Plaintiff lacked authority to demand such payments under the Notes and failed to comply with the parties' agreement. Id. ¶¶ 26, 35.

Legal Standard

Plaintiff moves to dismiss the Counterclaims pursuant to Rule 12(b)(6). To survive a motion to dismiss pursuant to Rule 12(b)(6), a claim must "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "Factual allegations must be enough to raise a right to relief above the speculative level." Id. at 555. In reviewing a motion to dismiss, a court must accept as true all well-pleaded allegations, and must draw all possible inferences in the plaintiff's favor. See Tamayo, 526 F.3d at 1081. "A party may plead itself out of court by pleading facts that establish an impenetrable defense to its claims." Id. at 1086 (citing Kolupa v. Roselle Park Dist., 438 F.3d 713, 715 (7th Cir. 2006)). Additionally, if the plaintiff inserts "unnecessary facts" the defendant "may use those facts to demonstrate that she is not entitled to relief." Id. (citing McCready v. eBay, Inc., 453 F.3d 882, 888 (7th Cir. 2006); Jackson v. Marion Cnty., 66 F.3d 151, 153-54 (7th Cir. 1995)).


Count I of Defendants' Counterclaims alleges that Plaintiff breached its agreement with Defendants regarding the Notes by, among other things, (i) imposing late payment penalties against Defendants due to their failure to make monthly interest payments subsequent to the Notes' maturity; (ii) issuing monthly statements demanding interest payments based upon a non-default interest rate, accepting those payments, and then retroactively increasing the interest rate to a default interest rate, thereby increasing the amount owed by Defendants under the Notes; and (iii) charging late fees based upon the principal outstanding balance at maturity. Id. ¶ 40. Defendants further assert that Plaintiff's breach has injured Defendants by limiting their ability to seek refinancing for amounts due under the Notes. Id. ¶¶ 41, 50, 64.

Count II of the Counterclaims contends that the Notes imposed an implied duty of good faith and fair dealing on Plaintiff, which was not expressly waived by the parties. Id. ¶ 43. According to Defendants, the Notes vested Plaintiff with discretion regarding: (i) whether to apply a default interest rate after a default under the Notes; and (ii) whether to apply penalties in the event that the borrower failed to make a timely payment under the Notes. Id. ¶ 44. Defendants assert that Plaintiff breached its duty of good faith and fair dealing by exercising its discretion under the Notes in bad faith, unreasonably, and in a manner inconsistent with the reasonable expectations of the parties. Id. ¶ 45.

Count III of the Counterclaims alleges that Plaintiff's retroactive increase of the interest rate on Defendant's monthly statements from a non-default rate to a default rate and Plaintiff's issuance of late payment penalties on the payment of principal constitute false and deceptive trade practices under the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 Ill. Comp. Stat. 505/1 et seq. (the "ICFA"). Id. ¶ 63. Defendants further assert that such actions damaged ...

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