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Kinzy v. Howard and Howard, PLLC

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

January 17, 2017

HOWARD AND HOWARD, PLLC, an Illinois professional limited liability company, HOWARD AND HOWARD ATTORNEYS, an Illinois limited liability company, HOWARD AND HOWARD, LLC, an Illinois limited liability company, HOWARD AND HOWARD, LTD., an Illinois corporation, FIDELITY NATIONAL LAW GROUP, a business entity, PIERCE AND ASSOCIATES, an Illinois corporation, PIERCE AND ASSOCIATES, PC, an Illinois corporation, PIERCE & ASSOCIATES, LTD., an Illinois corporation, and FIRST TENNESSEE BANK, NATIONAL ASSOCATION, a national bank, Defendants.



         Plaintiffs Kyle and Jacki Kinzy filed an eight count complaint against Defendants Howard & Howard PLLC, Fidelity National Law Group, Pierce and Associates, P.C., and First Tennessee Bank, National Association, related to First Tennessee's alleged improper foreclosure of the Kinzys' home, which was effectuated by the rest of the Defendants, law firms that represented First Tennessee in the foreclosure action.[1]

         Two motions are currently pending before the Court: (1) Fidelity and Pierce's[2] Motion to Dismiss or Transfer Case (Dkt. 17); and Howard & Howard, First Tennessee, and Pierce's (the “Stay Defendants”) Motion to Stay Proceedings Pending Resolution of Plaintiffs' Appeal (Dkt. 14). For the reasons stated below, the Motion to Dismiss or Transfer is denied and the Motion to Stay is granted.


         In January 2006, the Kinzys purchased a property in Long Grove, Illinois by obtaining a $1, 060, 000 mortgage loan from First Horizon Home Loan Corporation. (Dkt. 1 ¶¶ 13, 4; Dkt. 1-2 at 4-37; Dkt. 34 ¶ 17.) In the first half of 2007, First Tennessee acquired First Horizon's assets as part of a merger. (Dkt. 1-2 at 1; Dkt. 34 ¶¶ 18-20.) In September 2007, First Horizon recorded a mortgage on the Property, which was recorded to “add the husband's name” (the “2007 Mortgage”). (Id. ¶¶ 23-26.) The Kinzys allege that the 2007 Mortgage was created without their knowledge, included forgeries of Mr. Kinzy's initials, had a forged notary certification, and included other material alterations. (Id. ¶ 24.) On July 14 2009, First Horizon, then a division of First Tennessee and represented by Pierce, filed a foreclosure action in Lake County, Illinois Circuit Court against the Plaintiffs regarding the Property (the Foreclosure Action), alleging that the Kinzys had failed to pay their mortgage since August 2008 and attached the 2007 Mortgage. (Id. ¶ 28; Dkt. 14-6.) On April 9, 2010, First Horizon, again through Pierce, filed an amended complaint in the Foreclosure Action, also attaching the 2007 Mortgage. (Dkt. 14-7.) In response, the Kinzys filed various affirmative defenses and counterclaims against First Horizon and First Tennessee in the Foreclosure Action, including allegations that the 2007 Mortgage was invalid because it included forgeries. (Dkt. 14 ¶ 8-9.) The Kinzys' counterclaims were dismissed by the Circuit Court on October 24, 2013. (Dkt. 14- 9.) Following the dismissal of their counterclaims, the Kinzys filed First Amended Verified Counterclaims, again alleging the 2007 Mortgage included forged initials and First Tennessee was not the holder of the note due to alleged improprieties in its merger with First Horizon. (Dkt. 14-10.) The Amended Counterclaims included claims for breach of contract, breach of fiduciary duty, slander of title, false and misleading representations, various statutory violations, including violations of the Illinois Consumer Fraud and Deceptive Practices Act, and allegations that First Tennessee participated in a conspiracy to commit fraud, in addition to a claim to quiet title. (Dkt. 14-10, 14-11.) The amended counterclaims were stricken by the Circuit Court in the Foreclosure Action on January 8, 2015. (Dkt. 14-15.) A week later, First Tennesee filed its Third Amended Complaint in the Foreclosure Action, the Kinzys failed to respond, and a default judgment was entered against them on May 6, 2015. (Dkt. 14-16, 14-19.) On July 29, 2015, a Judgment of Foreclosure was entered against the Kinzys. (Dkt. 14-20.) Approximately one year later, the judicial sale of the Property was confirmed, and the court in the Foreclosure Action noted that both the 2006 and 2007 Mortgages “were properly executed and recorded with the Lake County Record of Deeds.” (Dkt. 14-21.) Plaintiffs filed their notice of appeal in the Foreclosure Action on August 26, 2016, and filed their opening brief on December 23, 2016. (Dkt. 14-22.) A review of their appeal brief reveals that the Kinzys' appeal primarily focuses on alleged failures by the trial court in the Foreclosure Action to properly consider their argument that the 2007 Mortgage is unenforceable because it includes forgeries and other defects.

         On April 14, 2016, before the judicial sale was confirmed, the Kinzys filed suit against the Defendants in federal court, primarily alleging that the Defendants violated various state and federal laws for prosecuting the Foreclosure Action based on the 2007 Mortgage, which according to them, was a fraud and unenforceable. Kinzy v. Howard & Howard, No. 16 C 4375 (N.D. Ill. 2016). In that action, which was assigned to this Court, Plaintiffs failed to timely serve the Defendants and then moved to voluntarily dismiss the suit pursuant to Federal Rule of Civil Procedure 41(a)(1) before responding to the Defendants' 12(b)(5) motion to dismiss. Three days after voluntarily dismissing the action, Plaintiffs filed the instant action, which was initially assigned to Judge Durkin and is substantively the same as the original federal action. (See Dkt. 1.) Upon the Defendants' request this action was transferred to this Court on October 4, 2016. (See Dkt. 21.)


         Fidelity and Pierce have moved for sanctions to be assessed against the Kinzys, arguing that the Kinzys' voluntary dismissal of the original federal action and then the refiling of a substantively similar complaint was an improper attempt to “judge-shop” and avoid this Court's review. As a sanction for this alleged impropriety, Fidelity and Pierce urge the Court to either dismiss the suit with prejudice or, pursuant to Rule 41(d), order Plaintiffs to pay for Defendants' costs in defending the original federal action and stay this matter until they have complied with such an order.[3] (Dkt. 17 at 5-9.)

         As Fidelity and Pierce point out, this Court “possesses inherent powers that are governed not by rule or statute but by the control necessarily vested in courts to manage their own affairs so as to achieve the orderly and expeditious disposition of cases.” Dietz v. Bouldin, 136 S.Ct. 1885, 1891 (2016) (quotation omitted). This inherent power includes the ability to sanction parties through dismissal, a sanction only reserved for the most egregious abuses of the judicial process, like fraud on the court, perjury, submission of falsified evidence, and destruction of evidence. Jackson v. Murphy, 468 F. App'x 616, 619-20 (7th Cir. 2012); see also Kovilic Constr. Co., Inc. v. Missbrenner, 106 F.3d 768, 773 (7th Cir.1997) (noting that cases that have upheld sanction of dismissal typically involve “bad faith, fraud, or undue delay by one of the parties”). Although judge-shopping could be considered to be conduct that abuses the judicial process, this Court is not convinced that by voluntarily dismissing the original federal action and then refiling a substantively similar suit, the Kinzys engaged in judge-shopping. Rather, it is possible that the Kinzys voluntarily dismissed the original federal action because the suit was potentially going to be dismissed due to their failure to timely serve the Defendants. That dismissal, as the Kinzys point out, would have been without prejudice, allowing them to refile their action. See Fed. R. Civ. P. 4(m). Although the Kinzys' prosecution of the original action may have been dilatory, their conduct does not rise to the level warranting dismissal of the instant action with prejudice, nor does it involve perjury, the submission of falsified evidence, or other actions warranting dismissal. Furthermore, the primary case cited by Fidelity in support of their argument for dismissal undercuts their position. See Hernandez v. City of El Monte, 138 F.3d 393, 399 (9th Cir. 1998) (finding that the district court abused its discretion when it dismissed actions with prejudice for judge-shopping because it failed “to consider less drastic sanctions for judge-shopping than dismissal of both actions”). Furthermore, Fidelity failed to cite to any authority from the Seventh Circuit where a court has dismissed an action under analogous circumstances.

         The Court also declines to impose monetary sanctions on the Kinzys pursuant to Federal Rule of Civil Procedure 41(d). In situations where, as here, plaintiffs filed an action based on or including the same claims against the same defendant after previously dismissing an action, Rule 41(d) permits the court to order plaintiffs to pay all or part of the costs of defending the previous action and may stay the proceedings until the sanctioned party has complied. Fed.R.Civ.P. 41(d). The decision to award such a sanction, however, is entirely within the court's discretion. Id. The Court declines to impose such sanctions under these circumstances. First, the voluntary dismissal occurred prior to any of the Defendants entering an appearance in the original suit. Furthermore, the Kinzys did not receive any adverse rulings from this Court in the original federal suit prior to their dismissal, a fact that makes it unlikely that they engaged in judge-shopping and that distinguishes it from Vaqueria Tres Monjitas, Inc. v. Cubano, 341 F.Supp.2d 69 (D.P.R. 2004), a case Fidelity and Pierce point to in support of their plea for sanctions.


         The Stay Defendants have moved to dismiss or stay the action pursuant to the Colorado River abstention doctrine because they argue that resolution of the Foreclosure Action, which is now on appeal, will resolve many, if not all of the Kinzys' claims in the instant action. See Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976). Instead of addressing the threshold questions regarding the applicability of the doctrine, however, the Stay Defendants spend most of their motion arguing that various preclusive doctrines would eliminate the Plaintiffs' claims if the Illinois Court of Appeals affirms the judgment of the trial court in the Foreclosure Action. Similarly, in their response, the Kinzys focus on the substantive legal issues that would arise if the state court's decision in the Foreclosure Action were to be affirmed. Because none of the parties have examined whether the doctrine applies, the Court will perform that analysis.


         Motions seeking abstention due to the Colorado River doctrine are typically filed pursuant to Rule 12(b)(1), and the Court will construe the Defendants' motion to stay or dismiss as one filed pursuant to that rule. When evaluating such a motion, the Court must accept all well-pleaded facts as true and draw reasonable inferences in favor of the plaintiff when determining whether it should decline to exercise jurisdiction and stay the proceeding. See Capitol Leasing Co. v. F.D.I.C., 999 F.2d 188, 191 (7th Cir. 1993). In its consideration, the Court “may properly look beyond the jurisdictional allegations of the complaint and view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists.” St. John's United Church of Christ v. City of Chicago, 502 F.3d 616, 625 (7th Cir. 2007) (quoting Long ...

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