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Beal Bank USA v. Swift

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

January 26, 2017

BEAL BANK USA, Plaintiff,
v.
MARCIA SWIFT and CHRISTOPHER SWIFT, Defendants.

          MEMORANDUM OPINION AND ORDER

          Gary Feinerman, Judge

         Beal Bank USA brought this suit against Marcia and Christopher Swift to recover payments due on a mortgage note. Several months earlier, Beal brought a state court action against the Swifts to foreclose on the property subject to the mortgage and to recover a personal deficiency judgment. See Beal Bank USA v. Swift, Case 2016 CH 593 (Cir. Ct. Kane Cnty., Ill. filed June 10, 2016) (state court complaint reproduced at Doc. 7-1). The Swifts have moved to dismiss or stay this case under the doctrine set forth in Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976), pending resolution of the state court action. The motion is granted.

         Background

         In 2011, an affiliate of Beal brought a foreclosure action on the Swifts' property in state court. See LNV Corp. v. Swift, Case 2011 CH 2069 (Cir. Ct. Kane Cnty., Ill. filed June 2, 2011) (state court complaint reproduced at Doc. 7-2). That action was dismissed without prejudice in January 2016. Doc. 7-3 at 20.

         In June 2016, Beal filed a foreclosure action in state court against the same property. Doc. 7-1. The complaint alleged that the Swifts failed to pay what they owed under the note secured by the mortgage, resulting in a debt of $449, 500.00 plus interest and other charges. Id. at 3 ¶ 3J. The complaint sought to foreclose on the property and also to collect a “personal deficiency judgment” against the Swifts for the total amount owed. Id. at 4 ¶ 3M, 5.

         In November 2016, Beal filed the present suit in this court. Doc. 1. The complaint alleges that the Swifts failed to make payments due on the mortgage note, resulting in their owing $449, 500.00 plus interest. Id. at ¶¶ 8, 11. As relief, Beal seeks a monetary judgment of $449, 500 plus interest and other charges. Id. at 3.

         The Swifts have moved this court to abstain in light of the pendency of the state court action. Doc. 7. At the presentment hearing, Beal suggested that the cases were not parallel under Colorado River because the state court action was an in rem action against the property, while this suit is an in personam action against the Swifts. When the court pointed out to Beal's counsel (who does not represent Beal in state court) that the state court complaint actually sought a personal deficiency judgment against the Swifts, counsel said “we will discuss that and thanks for bringing that to our attention.” Beal then successfully moved to amend its state court complaint to remove its request for a personal deficiency judgment. Doc. 15-1 at 3; Doc 19-4.

         Discussion

         The Colorado River doctrine provides that “a federal court may stay or dismiss a suit in federal court when a concurrent state court case is underway, but only under exceptional circumstances and if it would promote ‘wise judicial administration.'” Freed v. J.P. Morgan Chase Bank, N.A., 756 F.3d 1013, 1018 (quoting Colorado River, 424 U.S. at 818); see also Caminiti & Iatarola, Ltd. v. Behnke Warehousing, Inc., 962 F.2d 698, 700 (7th Cir. 1992). The Supreme Court “has cautioned that abstention is appropriate only in ‘exceptional circumstances, ' and has also emphasized that federal courts have a ‘virtually unflagging obligation … to exercise the jurisdiction given them.'” AXA Corporate Solutions v. Underwriters Reins. Corp., 347 F.3d 272, 278 (7th Cir. 2003) (alteration in original) (quoting Colorado River, 424 U.S. at 813, 817) (citation omitted). In determining whether to abstain, the court's task is “not to find some substantial reason for the exercise of federal jurisdiction by the district court; rather, the task is to ascertain whether there exist exceptional circumstances, the clearest of justifications, that can suffice under Colorado River to justify the surrender of that jurisdiction.” Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25-26 (1983) (internal quotation marks and emphases omitted).

         The Colorado River analysis has two steps. First, the court asks “whether the state and federal court actions are parallel.” Freed, 756 F.3d at 1018; see also Caminiti, 962 F.2d at 700. If the proceedings are not parallel, Colorado River abstention must be denied. Freed, 756 F.3d at 1018. If the proceedings are parallel, the court then must weigh ten non-exclusive factors to determine whether abstention is proper. Ibid.

         I. Whether the Federal and State Cases Are Parallel

         State and federal suits need not be identical to be parallel. See Adkins v. VIM Recycling, Inc., 644 F.3d 483, 498-99 (7th Cir. 2011) (“[F]or Colorado River purposes … [p]recisely formal symmetry is unnecessary.”); Interstate Material Corp. v. City of Chicago, 847 F.2d 1285, 1288 (7th Cir. 1988) (“Interstate is correct in its assertion that differences exist. However, the requirement is of parallel suits, not identical suits.”). Rather, suits are parallel when “substantially the same parties are contemporaneously litigating substantially the same issues in another forum.” Freed, 756 F.3d at 1019. “The question is not whether the suits are formally symmetrical, but whether there is a substantial likelihood that the [state] litigation will dispose of all claims presented in the federal case.” AAR Int'l, Inc. v. Nimelias Enters. S.A., 250 F.3d 510, 518 (7th Cir. 2001) (internal quotation marks omitted); see also Huon v. Johnson & Bell, Ltd., 657 F.3d 641, 646 (7th Cir. 2011) (same). “Any doubt regarding the parallel nature of the [state] suit should be resolved in favor of exercising jurisdiction.” Adkins, 644 F.3d at 499 (alteration in original) (internal quotation marks omitted).

         Here, there is no dispute that the parties in the state and federal cases are the same. Beal's argument against parallelism submits that the cases advance different claims and remedies: an in personam claim for a monetary judgment against the Swifts in the federal case, and an in rem claim for foreclosure against the property in the state case. Doc. 19 at 5-6. Beal's position fails for two independent reasons.

         First, a party opposing abstention may not unilaterally manufacture non-parallelism. In state court, Beal initially sought a foreclosure against the property and a deficiency judgment against the Swifts. The complaint in this court was redundant, seeking a contract judgment against the Swifts on the note. True, a deficiency judgment against the mortgagor in a foreclosure action can occur only after a foreclosure sale-with the deficiency judgment being the difference between the amount owed and the amount for which the property is sold, see 735 ILCS 5/15-1508(e); 735 ILCS 5/15-1508(b)(2)-while a contract claim on the note need not await a foreclosure sale. See LP XXVI, LLC v. Goldstein, 811 N.E.2d 286, 290 ( Ill. App. 2004) (“These remedies may be pursued consecutively or concurrently.”). That distinction, however, is immaterial. A contract action on the note achieves the same ultimate remedy as a foreclosure suit yielding a foreclosure sale followed by a deficiency judgment-the bank recovers the amount owed on the note-and both actions ultimately turn on the same question-whether the mortgagors defaulted on the note. So, as it originally stood, the state court action was parallel with the federal suit. See Freed, 756 F.3d at 1021 (“In short, the claims in both federal cases are premised upon the scheme that is now before the state court. … The cases rely on the same set of facts, present substantially similar legal issues, and involve substantially the same parties. We agree … that the federal actions are parallel to … the state court proceeding.”).

         It was only after this court alerted Beal's federal counsel that Beal's state court action pursued personal monetary relief against the Swifts that it quickly amended its state court complaint to drop that request for relief. Then, in its Colorado River response brief, Beal argued that the two actions are not parallel because the state court suit no longer seeks that monetary relief. Beal's gambit fails, for the Colorado River doctrine is not so naïve as to allow a party to strategically and cynically manipulate its pleadings to destroy parallelism. See Freed, 756 F.3d at 1020 (“The parallel nature of the actions cannot be destroyed by … repackaging the same issue under different causes of action.”); Clark v. Lacy, 376 F.3d 682, 686-87 (7th Cir. 2004) (same); Lumen Const., Inc. v. Brant Const. Co., Inc., 780 F.2d 691, 696 (7th Cir. 1985) (affirming abstention where the alleged lack of parallelism stemmed from the federal plaintiff's choice of which parties to bring into the state case); Freed v. Friedman, __ F.Supp.3d __, 2016 WL 6070357, *6 (N.D. Ill. Oct. 17, 2016) (“[A] finding that the cases are not parallel predicated on [the plaintiff's choices of whom to join] would unjustly reward strategic behavior, because [a potential defendant's] absence from the state proceedings is entirely attributable to [the plaintiff].”); Knight v. DJK Real Estate Grp., LLC, 2016 WL 427614, *5 (N.D. Ill. Feb. 4, 2016) (“[A party] by its unilateral choice cannot destroy parallelism.”).

         Even if Colorado River in theory allowed parties to unilaterally and intentionally engineer non-parallelism, Beal's amendment of its state court complaint failed to destroy the parallelism between the state court action and this suit. As noted, actions are parallel if “substantially the same parties are contemporaneously litigating substantially the same issues in another forum.” Freed, 756 F.3d at 1019. And parallelism is satisfied where “there is a substantial likelihood that the [state] litigation will dispose of all claims presented in the federal case.” AAR Int'l, 250 F.3d at 518 (internal quotation marks omitted). Importantly, the test does not require that the relief sought be the same. S ...


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