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Clark & Leland Condominium, LLC v. Northside Community Bank

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

June 17, 2015

Clark & Leland Condominium, L.L.C., an Illinois Limited Liability Corporation; Hueng K. Baek, Individually and as Manager of Clark & Leland Condominium, L.L.C., and Hyun Baek-Lee, Plaintiffs,
Northside Community Bank, an Illinois Chartered Bank, William Kivit, Individually and as Vice-President for Community Bank; Patricia A. Clausen, Individually and as President for Community Bank; Belinda M. Baier; and Maria Spencer Defendants.


THOMAS M. DURKIN, District Judge.

Plaintiffs Heung Baek ("Baek") and Hyun Baek-Lee ("Baek-Lee") (collectively, the "Baeks") and their company, Clark and Leland Condominium, LLC ("C&L"), (collectively, "Plaintiffs") bring this action against Defendants Patricia Clausen, Maria Spencer, Belinda Baier, William Kivit, and Northside Community Bank ("NSCB") (collectively, "Defendants"). Plaintiffs assert a claim under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c), et seq. Defendants moved to dismiss Plaintiffs' complaint or in the alternative to stay pursuant to the Colorado River doctrine. R. 5. Defendants subsequently amended their motion to dismiss-superceding their previous motion-to rely on an alternative ground for dismissal under Federal Rule of Civil Procedure 12(b)(6) based on res judicata. R. 13. For the following reasons, Defendants' motion to dismiss is granted.

Legal Standard

A Rule 12(b)(6) motion challenges the sufficiency of the complaint. See, e.g., Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). A complaint must provide "a short and plain statement of the claim showing that the pleader is entitled to relief, " Fed.R.Civ.P. 8(a)(2), sufficient to provide defendant with "fair notice" of the claim and the basis for it. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). This standard "demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While "detailed factual allegations" are not required, "labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555. The complaint must "contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'" Mann v. Vogel, 707 F.3d 872, 877 (7th Cir. 2013) (quoting Iqbal, 556 U.S. at 678). In applying this standard, the Court accepts all well-pleaded facts as true and draws all reasonable inferences in favor of the non-moving party. Mann, 707 F.3d at 877.

As a preliminary matter, the Court notes that res judicata is an affirmative defense, pursuant to which dismissal under Rule 12(b)(6) is generally not appropriate. See U.S. Gypsum Co. v. Ind. Gas Co., 350 F.3d 623, 626 (7th Cir. 2003); Fed.R.Civ.P. 8(c). Still, a plaintiff "may plead [him]self out of court by alleging (and thus admitting) the ingredients of a defense." U.S. Gypsum, 350 F.3d at 626. Thus, the doctrine of res judicata may properly be raised as a basis to dismiss a complaint pursuant to Rule 12(b)(6). Anderson v. Guaranteed Rate, Inc., No. 13 C 431, 2013 WL 2319138, at *3 (N.D. Ill. May 28, 2013).

Because such a defense often requires the court to consider matters outside the complaint, a motion raising it ordinarily must be treated as one for summary judgment. Arthur Anderson LLP v. Fed. Ins. Co., No. 6 C 1824, 2007 WL 844632, at *1 (N.D. Ill. Mar. 16, 2007) (citing Gen. Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080 (7th Cir. 1997)). However, the Seventh Circuit has held that "the district court may also take judicial notice of matters of public record without converting a 12(b)(6) motion into a motion for summary judgment." Henson c. CSC Credit Servs., 29 F.3d 280, 284 (7th Cir. 1994) (quoting United States v. Wood, 925 F.2d 1580, 1582 (7th Cir. 1991)). Thus, "[w]hen a defendant raises res judicata as a defense and it is clear from the complaint's face, and matters of which the district court may take judicial notice[, ] that the plaintiff's claims are barred as a matter of law, dismissal under Rule 12(b)(6) is proper." Arthur Anderson, 2007 WL 844632, at *7 (quoting Wilson v. Bob Watson Chevrolet, Inc., No. 03 C 5535, 2004 WL 432493, at *2 (N.D. Ill. Mar. 02, 2004)).


I. The Loans

The Baeks are spouses who came to the United States from Korea in 1999.[1] R. 1 ¶ 11. Baek was interested in developing residential and commercial properties. In 2005, through his limited liability company, C&L, Baek purchased property at 4651 N. Greenview Avenue in Chicago for commercial and residential development (the "Property"). Id. ¶ 12. Baek was the sole member of C&L and acted as its manager. Id. ¶¶ 1, 12. The purchase was financed by Labe Bank and Baek worked with loan officer Bill Frank on the transaction. Id. ¶¶ 12, 13.

In 2006, Frank left Labe for NSCB. Id. ¶ 13. Frank told Baek that he "needed to produce" for NSCB. Id. Plaintiffs allege Frank promised them that NSCB could offer them construction loans at higher amounts with a lower interest rate. Id. Subsequently, in July 2006, Baek entered into a construction loan agreement with NSCB for $11, 752, 336. Id.

As part of the loan agreement with NSCB, C&L executed a Construction Loan Agreement, Construction Mortgage, and a Promissory Note and Baek executed a commercial guaranty (the "Guaranty"). Id. ¶ 14. At the closing, NSCB presented a guaranty document that required signatures from both Baeks. Id. Baek's counsel objected to the requirement that Baek-Lee sign because Baek-Lee had not agreed to be a guarantor. Id. As a result, Baek-Lee did not sign the Guaranty at closing. Id. ¶ 14. Baek-Lee does not recall ever signing the Guaranty Id.

In July 2007, NSCB claimed that the loan was "out of balance" by the amount of monthly interest, approximately $49, 000 per month. Id. ¶ 17. Subsequently, NSCB demanded that Baek deposit more money in the construction loan account which he did for two months. Id. NSCB then required Baek to provide the title to his home as additional collateral instead of the $49, 000 monthly payment. Id. ¶ 18. Although Baek provided the title, NSCB refused to disburse funds to C&L's contractors. Id. Then, NSCB required Baek to deposit $700, 000 as additional collateral in return for which it would release the lien on his house. Id. Baek made the payment, however NSCB did not release the lien. Id. Defendant William Kivit, NSCB vice-president and Frank's boss, told Baek that he would extend the maturity date of the current construction loan and convert it to a long-term mortgage loan, but he did not. Id. NSCB resumed disbursing funds to Baek in February 2008, but did not convert the loan into a long-term mortgage or release the lien on Baek's house. Id. ¶ 19.

NSCB, C&L, and Baek subsequently entered into three loan modification agreements dated July 14, 2008; January 14, 2009; and December 14, 2009. Id. ¶ 15. Baek-Lee's signature appears on the loan modification agreements, but she does not remember signing them. Id. Baek-Lee asserts that she did not sign the third modification agreement and that her notarized signature was forged because she was not in the United States on December 14, 2009, the day it was signed. Id. Baek-Lee's passport shows that she was in South Korea that day. Id. ¶ 16. Plaintiffs allege that the notary notarized Baek and Baek-Lee's signatures outside their presence. Id.

The December 14, 2009 modification agreement authorized C&L to manage the operating account associated with the loan, however Kivit would not allow C&L or Baek to use the operating account until June 2010 when Baek complained to NSCB and Kivit that they were in violation of the terms of the third modification agreement. Id. ¶¶ 20, 21. NSCB also withdrew funds from the operating account as its attorney's fees. Id. ¶ 22.

When the construction on the Property was completed in January 2009, not all of the units were sold. Id. ¶ 25. Kivit proposed that Baek rent out all of the residential and commercial units at the Property, and told Baek that in return, NSCB would convert the construction loan to a long-term mortgage loan. Id. By May 2009, all of the residential and commercial units were rented out. Id. The tenants' security deposit on their leases were given to NSCB to be put in an escrow account. Id. C&L and Baek allege that NSCB had used the tenants' security deposits for payment of NSCB's loan interest although there were enough funds in the operating account to pay the interest. Id.

NSCB demanded that Baek and Baek-Lee provide it with their 2009 income tax returns. Id. ¶ 27. However, NSCB was in sole possession of the bank statements related to the operating account, which Baek and Baek-Lee evidently needed in order to prepare their income tax returns. Id. Baek asked Kivit to provide him with the bank statements and a copy of the checks that Kivit issued. Id. Kivit told Baek that NSCB ...

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