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First-Citizens Bank & Trust Co. v. Tricor Group LLC

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

March 30, 2017

FIRST-CITIZENS BANK & TRUST COMPANY, Plaintiff,
v.
TRICOR GROUP LLC, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          Andrea R. Wood United States District Judge

         The plaintiff in this case, First-Citizens Bank & Trust (“First-Citizens”), claims to be the successor in interest to Temecula Valley Bank (“Temecula”) with respect to a certain note (the “Note”) and security agreements relating to a business loan that Temecula made to Defendant Tricor Group LLC (“Tricor”). First-Citizens has brought this lawsuit to foreclose on one of the security agreements and to obtain money judgments from Tricor and the individuals who guaranteed Tricor's debt under the Note. Before the Court is a motion to dismiss the complaint brought by Tricor and the individual guarantors pursuant to Federal Rule of Civil Procedure 12(b)(6). (Dkt. No. 18.) For the reasons stated below, the motion is denied.

         BACKGROUND

         For the purposes of deciding this motion, the Court accepts the well-pleaded facts in the complaint as true and construes the allegations in the light most favorable to the plaintiff. See Thulin v. Shopko Stores Operating Co., LLC, 771 F.3d 994, 997 (7th Cir. 2014).

         On January 6, 2006, Tricor borrowed $645, 000 from Temecula. (Compl. ¶ 5, Dkt. No. 1.) In connection with that loan, Temecula and Tricor entered into a Business Loan Agreement, which sets forth the representations, warranties, and agreements governing the loan. (Id. ¶ 7 & Ex. 2.) To protect Temecula against potential default and secure the loan, Tricor mortgaged to Temecula certain real property located at 840 Rollins Road in Lake Heights, Illinois. (Id. ¶ 8.) In addition, Tricor and Defendant KVS Petroleum Inc. (“KVS”) entered into a Commercial Security Agreement with Temecula, which granted Temecula a security interest in certain personal property. (Id. ¶¶ 9, 10.) And finally, Defendants Johny Vadukumcherry and Emmanuel Kurian, who were Managing Members of Tricor, each agreed to guarantee unconditionally all debt owed pursuant to the loan. (Id. ¶ 14 & Ex. 2.)

         About three-and-a-half years after the loan was executed, on July 17, 2009, the California Department of Financial Institutions closed Temecula and appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. (Id. Group Ex. 8.) Immediately thereafter, First-Citizens purchased most of Temecula's assets from the FDIC and assumed most of Temecula's liabilities. (Id.) Pursuant to this purchase agreement, the FDIC filed a financing statement with the Illinois Secretary of State, perfecting First-Citizens's security interest in the personal property. (Id. ¶¶ 11, 12.) Then, on May 6, 2010, the FDIC validly assigned the Note and its rights under the related collateral agreements to First-Citizens. (Id. ¶ 16.) Tricor failed to make the required monthly payments on its loan and it is now in default. (Id. ¶ 17 & Ex. 9.) As a result, the entire indebtedness is immediately due and payable. (Id. ¶ 18.) First-Citizens sent a letter to Tricor on September 28, 2015 demanding immediate payment of all money due on the loan. (Id. ¶ 19.)

         Shortly thereafter, First-Citizens filed this lawsuit against Defendants seeking to foreclose on the Commercial Security Agreement. In addition to seeking to foreclose on its interest in the personal property subject to the agreement (Count I), First-Citizens also asserts claims for breach of the Note (Count II), breach of the Business Loan Agreement (Count III), and breach of the unconditional guarantees (Count IV). Now before the Court is a motion to dismiss the complaint filed by Defendants Tricor, Vadukumcherry, and Kurian pursuant to Federal Rule of Civil Procedure 12(b)(6). In their motion, Defendants argue, first, that First-Citizens's complaint fails to comply with the requirements of the Illinois Mortgage Foreclosure Law (“IMFL”), 735 ILCS 5/15-1504(a); and second, that First-Citizens lacks standing to foreclose on the security interest because it is not the legal holder of the Note. Both arguments fail for reasons that follow.

         DISCUSSION

         In exercising its diversity jurisdiction, this Court applies the substantive law of Illinois to determine the elements that First-Citizens must prove to establish its claims. See Sabratek Liquidating LLC v. KPMG LLP, No. 01 C 9582, 2002 WL 774185, at *2 (N.D. Ill. Apr. 26, 2002) (citing Charter Oak Fire Ins. Co. v. Hedeen, 280 F.3d 730, 735 (7th Cir. 2002)). To determine the sufficiency of First-Citizens's complaint, however, the Court looks to federal pleading standards. See id.

         Federal Rule of Civil Procedure 8(a) requires a complaint to contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). To survive a Rule 12(b)(6) motion to dismiss, the short and plain statement must meet two threshold requirements. First, the complaint's factual allegations must be sufficient to give the defendant fair notice of the claim and the grounds upon which it rests. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Second, the complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). While a complaint need not contain detailed factual allegations, there “must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. “A pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). “Nor does a complaint suffice if it tenders ‘naked assertion[s]' devoid of ‘further factual enhancement.'” Id. (quoting Twombly, 550 U.S. at 557). Moreover, the Court is not bound to accept as true legal conclusions couched as factual allegations. See Id. (citing Twombly, 550 U.S. at 555). Rather, “[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.” Adams v. City of Indianapolis, 742 F.3d 720, 728 (7th Cir. 2014) (quoting Iqbal, 556 U.S. at 678).

         I. First-Citizens's Compliance with the Illinois Mortgage Foreclosure Law

         Defendants contend that First-Citizens's complaint is deficient under the IMFL for two reasons. First, Defendants argue that First-Citizens failed to attach a copy of the mortgage to the complaint as required by the statute. Second, Defendants assert that First-Citizens improperly has declined to seek to foreclose on the mortgage as part of this case and instead purports to reserve the right to foreclose on the mortgage at some later date and in a separate proceeding. In response, First-Citizens argues that, since it is not foreclosing on a mortgage, it is not bound by the requirements of the IMFL.[1]

         Under Section 15-1504(a) of the IMFL, a party seeking foreclosure must attach a copy of the mortgage to its complaint. See 735 ILCS 5/15-1504. However, the language of the statute indicates that it is specifically intended to cover mortgage foreclosures. Indeed, the first subpart of Section 15-1504(a) explains that the form of filing described in that section may be used when a plaintiff files a complaint “to foreclose the mortgage (or other conveyance in the nature of a mortgage).” Id. (emphasis added). That Section 15-1504 applies to mortgage foreclosures in particular is reinforced by Section 15-1106 of the IMFL, which outlines the applicability of the Article. According to that section, a secured party “may at its election enforce its security interest in a foreclosure under” the IMFL. 735 ILCS 5/15-1106(b) (emphasis added). A secured party can make this election by “filing a complaint stating that it is brought under this Article, in which event the provisions of this Article shall be exclusive in such foreclosure.” Id. Furthermore, the only security interests enforceable under the IMFL are collateral assignments of beneficial interests in land trusts and assignments for security of a buyer's interest in a real estate installment contract. Id.

         First-Citizens is not attempting to foreclose on a mortgage at this time, but instead seeks only to foreclose on its security interest in personal property. In pursuit of this foreclosure, First-Citizens filed a complaint. Nowhere in that complaint does First-Citizens invoke the protections of the IMFL. Even if First-Citizens had sought to foreclose under the IMFL, its security interest would not be covered by that statute since it was not created by either a collateral assignment or an assignment of interest in a real estate ...


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