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WM Capital Management, Inc. v. Stejksal

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

October 14, 2016

WM Capital Management, Inc., as successor in interest to the Federal Deposit Insurance Corporation, as Receiver for Edgebrook Bank, Plaintiff,
v.
Robert J. Stejksal; Lisa Hagadorn; Global Cash Network, Inc.; Republic Bank of Chicago; Unknown Owners and Non-Record Claimants, Defendants. Republic Bank of Chicago, Counter-Plaintiff,
v.
WM Capital Management, Inc., as successor in interests to the Federal Deposit Insurance Corporation, as Receiver for Edgebrook Bank; Robert J. Stejksal; Lisa agadorn; Global Cash Network, Inc.; River North 414, LLC; Premium Themes, Inc.; River Park at Diversey Condominium Association; Unknown Owners and Non-Record Claimants, Counter-Defendants.

          MEMORANDUM OPINION AND ORDER

          Honorable Thomas M. Durkin United States District Judge

         WM Capital Management filed this action seeking to foreclose on (1) a mortgage of property located at 2208 West Diversey Avenue in Chicago, and (2) a security interest it holds in the assets of Global Cash Network. The defendants include the mortgagor, Lisa Hagadorn, and the obligors on the underlying notes, Robert Stejksal and Global Cash Network. Republic Bank has intervened and filed its own complaint alleging that that it also holds (1) a mortgage on 2208 W. Diversey (securing a note granted by counter-defendants River North 414 LLC and Premium Themes, Inc.), and (2) a security interest in Global's assets, and that these interests are prior to WM Capital's interests. After Republic intervened, WM Capital filed an amended complaint containing a claim against Republic (Count IV) that mirrors WM Capital's affirmative defense to Republic's claims. Republic has moved to dismiss Count IV of WM Capital's complaint, R. 94. Republic has also moved to strike certain affirmative defenses raised in response by WM Capital, R. 81; Hagadorn, R. 77; and Stejksal and Global, R. 79. For the following reasons, Republic's motion to dismiss Count IV of WM Capital's complaint is granted; Republic's motion to dismiss WM Capital's affirmative defenses is granted in part and denied in part; and Republic's motions to dismiss Hagadorn's and Stejksal and Global's affirmative defenses are denied.

         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.' Motions to strike affirmative defenses are “disfavored” unless they serve to “remove unnecessary clutter from the case.” Heller Fin., Inc. v. Midwhey Powder Co., Inc., 883 F.2d 1286, 1294 (7th Cir. 1989). Striking an affirmative defense may be appropriate where doing so would significantly effect the scope of discovery. Otherwise, it is often simply wasteful make-work better suited for summary judgment. Nevertheless, “[a]ffirmative defenses are pleadings and, therefore, are subject to all the pleading requirements of the Federal Rules of Civil Procedure.” Id. “While the Seventh Circuit has not addressed whether the Twombly-Iqbal standard applies to affirmative defenses, judges in this district have generally found these requirements to apply.” Edwards v. Mack Trucks, Inc., 310 F.R.D. 382, 386 (N.D. Ill. 2015).

         I. Motion to Dismiss Count IV of WM Capital's Second Amended Complaint (R. 94)

         Edgebrook Bank made loans to Global on November 30, 2010 and April 13, 2011. See R. 87-1; R. 38-4. Both notes were secured by Global's assets. See R. 87-4; R. 38-5. At some point, whether before or after Edgebrook went into receivership, Republic acquired the 2010 note and security agreement, and WM Capital acquired the 2011 note and security agreement. The parties dispute whose security interest takes priority.

         In Count IV of its second amended complaint, WM Capital alleges that even if its 2011 security interest in the Global's assets is secondary to Republic's 2010 security interest, the “cross-collateralization” clause in Republic's security agreement securing Republic's 2010 note also secures WM Capital's 2011 note, because it states:

In addition to the [2010] Note, this Agreement secures all obligations, debts and liabilities of [Global] to [Edgebrook] . . . whether now existing or hereinafter arising . . . .

R. 87-9. WM Capital alleges that since its note was issued after the date of Republic's 2010 security agreement, that agreement also serves to secure WM Capital's 2011 note.

         The problem with this argument is that WM Capital was not assigned any rights in the November 2010 security agreement. Despite this fact, WM Capital contends that it can benefit from the terms of the November 2010 security agreement because “Edgebrook . . . created an interrelated set of loans, loan obligations, and security agreements cross-collateralizing all of its loans with Global. To try to view these documents as if they were separate and distinct loan packages, ignores the reality of what Edgebrook intended to do, and did do.” R. 113 at 4 (emphasis added). But WM Capital's argument “ignores the reality” that the notes and security agreements at issue were separately assigned to different entities-namely WM Capital and Republic Bank-and now actually do exist as “separate and distinct loan packages.” WM Capital has pointed to no contractual provision or legal authority to support its argument that it should benefit from a security agreement to which it is not a party. Since WM Capital is not a party to the 2010 security agreement, and has not assumed the interests of any original party to the 2010 security agreement, WM Capital cannot assert rights under the 2010 security agreement.

         WM Capital also argues that it is a third party beneficiary of Republic's security agreement because it holds a note the 2010 security agreement was originally intended to secure. Presumably, WM Capital intends to argue that it fits the “description of a class” identified by the cross-collateralization clause. See Hunter v. Old Ben Coal Co., 844 F.2d 428, 432 (7th Cir. 1988). That clause, however, did not create a class of potential third party beneficiaries to the agreement; rather, it further encumbered the collateral as security for any future obligations between the original parties to the security agreement. Providing that the collateral will secure notes that are delivered in the future does not expand the class of persons who have rights to that security. Edgebrook was originally the secured party, and Republic was later assigned those rights. WM Capital was not assigned any rights under the 2010 security agreement. Just because WM Captial now holds a note that might have been secured by the collateral identified in the 2010 security agreement (but was not) does not show that WM Capital has any such rights. Thus, WM Capital's argument that it is a third party beneficiary of the 2010 security agreement does not save Count IV of its complaint, and it is dismissed.

         II. Motion to Strike WM Capital's Affirmative Defenses to Counts I and III of Republic's Complaint (R. 81)

         A. Affirmative Defense to Count I

         In addition to its loans to Global, Edgebrook made a loan to defendants River North 414 LLC and Premium Themes, Inc. (the “Premium Loan”). R. 34-2. The Premium Loan was secured by a mortgage of 2208 West Diversey made by Lisa Hagadorn. R. 34-1. At some point, Republic was assigned the Premium Loan and the Hagadorn mortgage, and seeks to foreclose on it. As an affirmative defense (and in support of its own claim for foreclosure on 2208 West Diversey) WM Capital alleges that, pursuant to a “Terms Agreement, ” Edgebrook released the Hagadorn ...


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