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Murad v. Raymond James Bank

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

May 22, 2015



JOHN J. THARP, Jr., District Judge.

For the reasons set forth in the Statement below, the Court grants the motion of defendant Raymond James Bank ("RJB"), Dkt. 5, to dismiss the plaintiffs' Complaint, Dkt. 1. The plaintiffs are granted leave to amend on or before June 19, 2015. Absent timely amendment, judgment for RJB will be entered and the case will be terminated.


This case concerns a piece of residential property in Bloomingdale, Illinois, which RJB purchased in a foreclosure sale in April of 2014. See RJB Exs. 3-4, Dkts. 6-4 and 6-5. The plaintiffs filed this two-count action against RJB on September 29, 2014, alleging that in January and November of 2013 (after RJB obtained a Judgment for Foreclosure, but before it purchased the property), plaintiff Murad had entered into lease and purchase agreements with the former owner of the property, Samir Fakhouri. Id.; Compl., Dkt. 1, ¶¶ 12-13, 20, 25-26. The Complaint further alleges that plaintiff Redmon Construction, Inc. ("Redmon") has been owed over $78, 000 since June 30, 2014, for "labor, services, use of equipment and material used for various repair [sic] in the subject property." Id. at ¶¶ 2, 14, 28. Presumably (though the complaint does not so allege), Redmon provided those repairs pursuant to an agreement with Murad. Notably, however, the Complaint does not allege that Redmon was a party to either the lease or purchase agreement between Murad and Fakhouri. Nevertheless, in Count I of the Complaint, both plaintiffs seek a declaratory judgment that, pursuant to 735 ILCS 5/9-207.5, RJB "must honor the full term of the Lease, " id. at ¶ 22; and in Count II, seek "specific performance" of the purchase agreement, or alternatively, "should Defendant not be required to comply with the terms of the purchase contract, " Redmon "requests a Judgment for $78, 619.42, plus interest at 18% per annum, " for the foregoing repairs. Id. at ¶ 28. Jurisdiction is based on diversity pursuant to 28 U.S.C. § 1332. Id. at ¶¶ 6, 10.

RJB now seeks dismissal of the plaintiffs' Complaint on three grounds: (1) that Count II was adjudicated in the prior foreclosure action and is now barred by res judicata, and that its resulting dismissal (says RJB) would deprive the Court of diversity jurisdiction, requiring "the entire action" to be dismissed pursuant to Fed.R.Civ.P. 12(b)(1); (2) that "Plaintiffs have failed to join a necessary party, " whose joinder would again "deprive the Court of diversity jurisdiction, " requiring dismissal pursuant to Fed.R.Civ.P. 12(b)(7); and (3) that both Counts of the Complaint "are substantially insufficient under Federal Rule of Civil Procedure 8, " requiring dismissal pursuant to Fed.R.Civ.P. 12(b)(6). See RJB Mem., Dkt. 6, at 1-2, 5-6. As explained below, the Court agrees that the Complaint fails to allege a cognizable claim and should therefore be dismissed in its entirety. Because the Complaint is confusingly drafted, however, and because the plaintiffs have altered their theories of liability, the Court's route to this conclusion differs substantially from that taken by RJB.

I. Res Judicata and Subject Matter Jurisdiction

The Court begins with RJB's res judicata defense against Count II of the plaintiffs' Complaint because, according to RJB, this defense implicates jurisdictional concerns. This defense relies on the May 13, 2014 "Order Confirming Sale" which concluded RJB's foreclosure action regarding the Bloomingdale property. See Def. Ex. 4, Dkt. 6-4.[1]RJB argues that this Order bars any claims in Count II that predated May 13, 2014, because they were "adjudicated" at that time by the foregoing Order. See RJB Mem., Dkt. 6, at 4-5; RJB Reply, Dkt. 11, at 2. From there, RJB reasons that "the entire action would also need to be dismissed pursuant to Rule 12(b)(1), as the Court would no longer have diversity jurisdiction" in the "absence" of Count II, which "contains the only claim for monetary damages in the amount required by 28 U.S.C. § 1332." RJB Mem., Dkt. 6, at 5. But the argument relies on a faulty premise-namely, that the dismissal of Count II would deprive the Court of diversity jurisdiction.

"It is well established that the requirements for diversity jurisdiction must be satisfied only at the time a suit is filed." Grinnell Mut. Reinsurance Co. v. Shierk, 121 F.3d 1114, 1116 (7th Cir. 1997). So, "if the amount in controversy exceeds the jurisdictional amount when a suit is filed in federal court, the fact that subsequent events reduce the total amount in controversy will not divest the court of diversity jurisdiction." Id. Subsequent dismissal of the only claim supporting the jurisdictional amount (here, Count II), based on the successful assertion of an affirmative defense (such as res judicata), therefore has no jurisdictional effect. Cf. Tropp v. Western-Southern Life Ins. Co., 381 F.3d 591, 595 and n.2. (7th Cir. 2004) (jurisdictional amount in controversy was established by claim for injunctive relief in original complaint that plaintiff "subsequently chose not to purse" in amended complaint).

Similarly misguided is the argument in RJB's Reply that "the Complaint in its current form is factually insufficient and fails to demonstrate that this Court has subject-matter jurisdiction" because Count II fails to plead facts "necessary to determine if any amounts accrued prior to May 13, 2014, as those amounts would have been adjudicated in the foreclosure action and would not be recoverable in this matter." See RJB Reply, Dkt. 11, at 2. According to RJB, the plaintiffs must allege "the dates on which specific repairs were made and the monetary values that attached to each repair" in order to demonstrate that such amounts are not barred by res judicata and thus support the jurisdictional "amount in controversy." Id. But again, even a proper dismissal of Count II as barred by res judicata would not negate the diversity jurisdiction with which this Court is already vested.

Nor is it a plaintiff's burden to plead facts necessary to overcome a res judicata defense, as RJB argues here. See Sidney Hillman Health Ctr. of Rochester v. Abbott Labs, Inc., 782 F.3d 922, 928 (7th Cir. 2015) ("a complaint need not anticipate and overcome affirmative defenses"). While it is true that a res judicata defense "provides a proper basis for a Rule 12(b)(6) motion" where the defense "is disclosed in the complaint, " Muhammad v. Oliver, 547 F.3d 874, 878 (7th Cir. 2008), as RJB concedes, its res judicata defense is not so disclosed here, because the plaintiffs' Complaint lacks the dates "necessary to determine if any amounts accrued prior to" the May 13, 2014 Order on which RJB relies. See RJB Reply, Dkt. 11, at 2.[2]In such a case, the proper course is to assert the defense in an answer, not a motion to dismiss under Rule 12(b)(6). See Oliver, 547 F.3d at 878 ("res judicata is not one of the affirmative defenses that Rule 12(b) permits to be made by motion rather than in the answer to the complaint"); Sidney Hillman, 782 F.3d at 928 ("we have cautioned that this irregular' approach [of a Rule 12(b)(6) dismissal based on an affirmative defense] is appropriate only where the allegations of the complaint itself set forth everything necessary to satisfy the affirmative defense'" (quoting Chi Bldg. Design, P.C. v. Mongolian House, Inc., 770 F.3d 610, 613-14 (7th Cir. 2014)). RJB's argument that the Complaint here fails to provide the detail necessary to substantiate its res judicata defense thus demonstrates a deficiency not in the Complaint, but in RJB's Rule 12(b)(6) motion.

There are substantive flaws in RJB's res judicata defense as well. The defense posits that "Murad's non-record interest was adjudicated when the Property was sold at the foreclosure sale" that was ordered in the foreclosure action. See RJB Reply, Dkt. 11, at 1. The plaintiffs have made clear, however, that they no longer assert a "non-record interest" in the property.[3]Instead, they contend that the "issue in this case is whether the new owner of the subject house, Defendant herein, should honor the existing Lease" and "be responsible for the repairs performed on its house, " either contractually under the foregoing lease or under a theory of quantum meruit. See Pltfs. Opp., Dkt. 10, at 5-7. Neither of these claims is barred by the prior foreclosure action.

As to the first (the claim that RJB must honor the lease Murad executed with the former property owner), as RJB acknowledges, this claim is preserved (within certain constraints discussed below) by Illinois statute. See 735 ILCS 5/9-207.5(a) ("the purchaser at a judicial sale... may terminate a bona fide lease, as defined in Section 15-1224 of this Code, only... at the end of the term of the bona fide lease"); RJB Mem., Dkt. 6, at 8-9 (citing 735 ILCS 5/9-207.5(a) and 5/15-1224). The question as to this claim, therefore, is not whether it is barred by res judicata as a result of the prior adjudication, but whether the lease Murad entered into with the former property owner meets the requirements of a "bona fide lease" under 735 ILCS 5/15-1224.

As to the plaintiffs' claims for amounts allegedly due under this lease, or alternatively under an "unjust enrichment" or "quantum meruit" theory, both the Seventh Circuit and Illinois courts have repeatedly recognized that a mortgage foreclosure action does not bar subsequent claims related to the foreclosed property that nevertheless rest on an agreement distinct from, or upon facts unrelated to the default of, the mortgage that prompted the prior foreclosure action.[4] Such courts have thus sustained over res judicata defenses claims for breach of an agreement separate from the foreclosed ...

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