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United States v. Romero

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

September 28, 2016

UNITED STATES OF AMERICA, Plaintiff,
v.
ROBERT M. ROMERO, Defendant. ROBERT M. ROMERO, Third Party Plaintiff,
v.
CONTINENTAL SERVICE GROUP, INC., Third Party Defendant.

          MEMORANDUM OPINION AND ORDER

          John J. Tharp, Jr. Judge

         Third-party plaintiff Robert Romero brings suit against Continental Service Group, Inc. (“ConServ”), alleging that ConServ breached an implied warranty of authority when it purported to act on behalf of the United States and entered into an agreement with Romero for the repayment of his federally-backed student loans. Romero also alleges that ConServ is liable to him under the theory of promissory estoppel because of this agreement. ConServ moved to dismiss the third party complaint, and Magistrate Judge Martin recommended that this Court grant the motion on the basis of non-compliance with the statute of limitations. This Court disagrees with the recommendation, concluding that it is not clear on the face of the Third Party Complaint that Romero knew of his injury within the five-year statute of limitations. The Court further concludes that, on the merits, the third party complaint states a plausible claim for relief.

         BACKGROUND

         The United States filed suit against Romero on September 30, 2014 for the collection of unpaid, federally-funded student loans. First Am. Compl. ECF No. 16. In response, Romero alleged that the debt had been settled through ConServ in January 2006. Answer to Am. Compl. 4, ¶ 1, ECF No. 20. Romero alleged that in January 2006 ConServ called him, represented that it was acting on behalf of the United States Government, and offered to settle the remaining balance of the student loans (which was at that time $103, 841.64). Countercl. ¶¶ 3-5, ECF No. 20. Romero alleged that he agreed with ConServ to pay a total of approximately $10, 000 to settle the debt: approximately $4, 808.70 by credit card to ConServ over the phone that day, and $5, 191.30 by mailing a check to the U.S. Department of Education. Id. ¶ 6. After making the required payment by credit card, id., Romero received a written offer from ConServ to settle his remaining debt for $5, 191.30, Third Party Compl. Ex. A, ECF No. 50-1, Romero mailed a check for $5, 191.30 to the U.S. Department of Education on January 26, 2006. TPC Ex. B-C, ECF Nos. 50-2, 50-3. In his Counterclaim against the United States, Romero alleged: “On February 1, 2006, United States of America retracted the settlement agreement it entered into with Robert M. Romero, ” and, “On February 2, 2006, United States of America returned the $5, 191.30 check received from Robert M. Romero.” Countercl. ¶¶ 10-11.

         After the United States initiated this suit to collect the outstanding balance of Romero's loans, a consent judgment was entered on June 29, 2015, in favor of the United States for $109, 104.73 plus costs (of which Romero was required to pay $100, 000 by a date certain, after which the judgment was satisfied). J. Order, ECF No. 54.

         On June 22, 2015, just before this consent judgment, Romero had filed a Third Party Complaint (“TPC”) against ConServ, in essence seeking to hold Conserv liable for his debt to the United States, asserting theories of implied warranty of authority and promissory estoppel. TPC ¶¶ 14-34, ECF No. 50. Romero alleges that ConServ warranted to Romero through both the phone conversation and the written offer that ConServ had the authority to settle the unpaid student loan balance on behalf of the United States Government. Id. ¶¶ 16-17. Romero asserts that because he relied upon ConServ's warranty and did not make any further payments on the notes, he came to owe the Government over $104, 000. Id. ¶ 21. Romero's promissory estoppel claim against ConServ is based on the same reliance theory. Id. ¶¶ 25-34.

         ConServ filed a Motion to Dismiss the TPC alleging, among other things, that both of Romero's claims are time-barred. Mem. in Supp. of Mot. to Dismiss, 4-5, 8-9, ECF No. 68. ConServ contends that both the promissory estoppel and the breach of implied warranty of authority claims have five-year statutes of limitations, Id. 4, 9, and that Romero should reasonably have been aware of his alleged injury when the Government returned the check on February 2, 2006. Id. 5. Romero counters that he first knew about his alleged injury on September 20, 2014, when the United States filed its lawsuit against Romero, and that the statute of limitations should have begun to run on that date. Resp. in Opp'n to Mot. to Dismiss, 7, ECF No. 80. He denies knowledge that the United States returned the check in February 2006. Id. 8. Additionally, Romero argues that his claim for breach of implied warranty of authority is a contract claim with a ten-year statute of limitations, and therefore is not time-barred even if he was aware of his alleged injury in 2006. Id. 12.

         In his Report and Recommendation, [1] Magistrate Judge Martin recommended that ConServ's Motion to Dismiss be granted on the grounds that both claims are time-barred. Report & Recommendation 9, ECF No. 83. Judge Martin concluded that a five-year statute of limitations applies to Romero's breach of implied warranty of authority because ConServ's alleged liability does not derive from a contractual obligation, but from common law tort concepts. Id. 4. Judge Martin also found that Romero's statements in his Counterclaim were judicial admissions that are binding on Romero as to ConServ. Id. 6, 7. Based on those admissions-specifically, that the United States repudiated the agreement and returned the check-Judge Martin determined that Romero was aware of his injury on February 1, 2006, and his claims against ConServ are barred by the statute of limitations. Id. 9.

         Romero filed timely objections to the Report and Recommendation, and Conserv responded. Objections, ECF No. 85; Resp, ECF No. 86.

         DISCUSSION

         Because Conserv brought a dispositive pretrial motion, this Court reviews de novo the parts of the magistrate judge's recommended disposition as to which Romero made a timely objection. Fed.R.Civ.P. 72(b)(3). Romero objected to two aspects of Judge Martin's Report and Recommendation. First, he argues that Judge Martin erred when he determined that the breach of implied warranty of authority claim is subject to a five-year statute of limitations because the claim sounds in contract and such claims have a ten-year statute of limitations. Objection ¶¶ 1-2, ECF No. 85. Second, Romero contends that Judge Martin erred in binding Romero to the pleadings in his Counterclaim against the United States and finding that the statute of limitations began to run on February 1, 2006. Id. ¶ 3. Romero argues that his pleadings against ConServ assert no knowledge of his alleged injury until 2014, and that this creates an issue of fact that cannot be decided on a motion to dismiss. Id.

         “When a defendant charges noncompliance with the statute of limitations, dismissal under Rule 12(b)(6) is irregular, for the statute of limitations is an affirmative defense.” Chicago Bldg. Design, P.C. v. Mongolian House, Inc., 770 F.3d 610, 613 (7th Cir. 2014) (citing United States v. N. Trust Co., 372 F.3d 886, 888 (7th Cir.2004)). “[A] motion to dismiss based on failure to comply with the statute of limitations should be granted only where the allegations of the complaint itself set forth everything necessary to satisfy the affirmative defense.” Id. at 614 (citing United States v. Lewis, 411 F.3d 838, 842 (7th Cir.2005)). In reviewing a motion to dismiss, a court must draw all favorable inferences for the non-moving party. Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d 614, 618 (7th Cir. 2007).

         For the reasons stated below, this Court agrees with Magistrate Judge Martin's conclusion that the applicable statute of limitations for both of Romero's theories of relief is five years, but nevertheless concludes that it cannot be determined on the pleadings alone when Romero knew or should have known that ConServ had injured him.

         I. Applicable ...


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