United States District Court, N.D. Illinois
MEMORANDUM OPINION AND ORDER
E. Aspen United States District Judge.
before us is Defendant Nitin Patel's motion to dismiss
the United States' amended complaint or, in the
alternative, to stay the proceedings in this action. (Dkt.
No. 12.) For the reasons set forth below, we deny Patel's
motion to dismiss stage, we accept all well-pleaded factual
allegations as true, and draw all inferences in the
plaintiff's favor. Cole v. Milwaukee Area Tech. Coll.
Dist., 634 F.3d 901, 903 (7th Cir. 2011). On October 27,
2005, Defendant D&R Real Estate Holdings, LLC
(“D&R”) borrowed $198, 000 from the Small
Business Administration (“SBA”).(Am. Compl. ¶
4.) On that same day, D&R “made, executed, and
delivered to SBA its promissory note . . . in the original
amount of $198, 000.” (Id.) As security,
D&R granted the SBA a mortgage to real estate at 1621
Algonquin Road, Mount Prospect, Illinois (“the
property”). (Id. ¶ 5.) That mortgage was
recorded on October 28, 2005. (Id.)
alleges that, in June 2014, D&R defaulted on its loan
and, “by virtue of these defaults, the maturity of the
Note has been accelerated and the entire balance of principal
and interest is declared due and payable.”
(Id. ¶ 7.) Thus, as of June 1, 2016, the SBA
alleges D&R owed $162, 885, with interest still accruing
daily. (Id. ¶ 8.)
September 2005, D&R granted a mortgage on the same
property to American Chartered Bank. (Dkt. No. 12-1 at Pg.
ID#: 68-80.) D&R defaulted on its loan payments to
American Chartered Bank, which instituted a foreclosure
action in Illinois state court in June 2014. (Def.'s Mtn.
(Dkt. No. 12) ¶ 2; see Dkt. No. 12-1 at Pg.
ID#: 49-64 (American Chartered Bank's complaint).)
American Chartered Bank joined the SBA, as a junior mortgage
holder, in that action. (Dkt. No. 12-1 at Pg. ID#: 49-50;)
Pl.'s Resp. (Dkt. No. 15) at 1.) The SBA brought a
counterclaim seeking to foreclose its junior mortgage. (Dkt.
No. 12-2.) On June 23, 2015, the Illinois state court entered
a judgment of foreclosure and sale. (Dkt. No. 12-3.) However,
no judicial sale occurred; instead, the property was sold
privately to Defendant Patel on March 15, 2016. (Dkt. No.
12-5 at Pg. ID#: 352; Am. Compl. ¶ 11.) American
Chartered Bank placed the proceeds from the sale in an escrow
fund. (Dkt. No. 12-5 at Pg. ID#: 148-49; Def.'s Mtn.
¶ 5.) The SBA alleges Patel “took title to the
property subject to the SBA's mortgage lien.” (Am.
Compl. ¶ 11.)
April 21, 2016, American Chartered Bank filed a motion to
determine disbursement of the funds from that private sale,
because the SBA and American Chartered Bank dispute the
amount of proceeds the government should receive from that
sale. (Dkt. No. 12-5 at Pg. ID#: 148-55.) That motion is
still pending before the Illinois state court. (Def.'s
Mtn. ¶ 6.) On July 6, 2016, the SBA instituted this
foreclosure action, claiming its “lien position on the
subject property is superior to all other defendants.”
(Am. Compl. ¶ 10.) Patel filed the instant motion to
dismiss or, in the alternative, stay this action on October
6, 2016. (Dkt. No. 12.)
moves to dismiss the SBA's claim pursuant to Rule
12(b)(6) of the Federal Rules of Civil Procedure. “The
purpose of the motion to dismiss is to test the sufficiency
of the complaint, not decide the merits.” Gibson v.
City of Chi., 910 F.2d 1510, 1520 (7th Cir. 1990)
(internal quotation marks omitted) (quoting Triad
Assocs., Inc. v. Chicago Hous. Auth., 892 F.2d 583, 586
(7th Cir. 1989)). To survive a Rule 12(b)(6) motion to
dismiss, a complaint need only contain enough facts to
“state a claim to relief that is plausible on its
face.” Ashcroft v. Iqbal, 556 U.S. 662, 678,
129 S.Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v.
Twombly, 556 U.S. 544, 570, 127 S.Ct. 1955, 1974 (2007))
(internal quotation marks omitted). A complaint “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.”
alternative, Patel argues that, pursuant to Colorado
River Water Conservation Dist. v. United States, 424
U.S. 800, 86 S.Ct. 1236 (1976) and Federal Rule of Procedure
12(b)(1), we must dismiss or stay the SBA's foreclosure
action pending resolution of the motion to determine
disbursement of the funds from the private sale of the
property that is currently pending in Illinois state court.
Abstention pursuant to Colorado River is “an
extraordinary and narrow exception to the duty of a District
Court to adjudicate a controversy properly before it.”
Id. at 813, 96 S.Ct. at 1236. In deciding whether to
stay proceedings pursuant to Colorado River, we
first “determine whether ‘the concurrent state
and federal actions are actually parallel.'”
Tyrer v. City of South Beloit, Ill., 456 F.3d 744,
751 (7th Cir. 2006) (quoting Clark v. Lacy, 376 F.3d
682, 685 (7th Cir. 2004)). “If there is any doubt that
cases are parallel, a district court should not
abstain.” Huon v. Johnson & Bell, Ltd.,
657 F.3d 641, 646 (7th Cir. 2011). If we determine the cases
are actually parallel, we must then “consider a number
of non-exclusive factors that might demonstrate the existence
of exceptional circumstances.” Tyrer, 456 F.3d
at 751 (internal quotation marks omitted) (quoting
Clark, 376 F.3d at 685). Abstention is warranted
only if we determine both of these requirements have been
moves to dismiss SBA's action based on both collateral
and judicial estoppel. Patel argues that collateral estoppel
bars the SBA's action because it “elected to allow
the private sale [of the property] to proceed and did not
object in the Cook County case to that procedure.”
(Def.'s Mtn. ¶ 20.) Patel thus argues that the
“Cook County Court's order approving the private
sale precluded a foreclosure on the property acquired by Mr.
Patel.” (Id.) The SBA argues in response that
collateral estoppel cannot apply here, because there was no
final judgment in the Illinois state court foreclosure case.
(Pl.'s Resp. at 3-4.) While there was a foreclosure
judgment in the Illinois state court case, the SBA argues
that the “final order in a mortgage foreclosure case is
a sale confirmation order, ” which will not be entered
because of the intervening private sale to Patel.
(Id. at 4.)
estoppel “generally bars relitigation of issues that
were litigated fully and decided with finality in a previous
proceeding.” Sornberger v. City of Knoxville,
Ill., 434 F.3d 1006, 1020 (7th Cir. 2006) (citing
Federated Dep't Stores, Inc. v. Moitie, 452 U.S.
394, 398, 101 S.Ct. 2424, 2428 (1981); Lee v. City of
Peoria, 685 F.2d 196, 199-202 (7th Cir. 1982)).
“Federal courts give preclusive effect to state court
judgments to the extent provided by state law.”
Burke v. Johnson, 452 F.3d 665, 669 (7th Cir. 2006)
(citing 28 U.S.C. § 1738; Allen v. McCurry, 449
U.S. 90, 95-96, 101 S.Ct. 411, 415-16 (1980)). In Illinois,
the application of collateral estoppel requires at least that
“(1) the issue decided in the prior adjudication is
identical with the one presented in the suit in question, (2)
there was a final judgment on the merits in ...