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Skibbe v. U.S. Bank Trust, N.A.

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

June 9, 2017

DWAYNE SKIBBE and DEBORAH SKIBBE, Plaintiffs,
v.
U.S. BANK TRUST, N.A., As Trustee for LSF9 MASTER PARTICIPATION TRUST, and LAW OFFICES OF IRA T. NEVEL, Defendants.

          MEMORANDUM OPINION AND ORDER

          Harry D. Leinenweber, United States District Court Judge

         For the reasons stated herein, the Court grants Dwayne and Deborah Skibbe's Motion to Dismiss U.S. Bank Trust's Counterclaims [ECF No. 50].

         I. BACKGROUND

         The events in this lawsuit are largely undisputed. In 2004, Dwayne and Deborah Skibbe (collectively, the “Skibbes”) obtained a mortgage from Household Finance Corporation. The mortgage was secured by the Skibbes' residence. In April 2010, the Skibbes stopped paying their mortgage and have not made another payment since. In December of that year, Household Finance, through its agent Ira T. Nevel (“Nevel”), a co-Defendant in this case, filed a foreclosure action again the Skibbes in Kane County. In this first of three foreclosure lawsuits, Household Finance alleged that the Skibbes defaulted in April 2010 and owed Household Finance some $259, 657.30.

         In 2011, the Skibbes filed for Chapter 13 bankruptcy. As part of the bankruptcy, they submitted a statement of intention in which they declared that they would surrender the subject property in satisfaction of the outstanding debt. Even though such a statement would not alleviate the need for the creditor to foreclose on the property, see, Vlasic v. Equifax Credit Info. Servs., No. 03 C 4044, 2004 U.S. Dist. LEXIS 8361, at *6 (N.D. Ill. May 10, 2004) (“Defendants correctly point out that Vlasic's intention to surrender the property did not transfer title in the property.”); ECF No. 72 (U.S. Bank Trust's Reply Br.) at 14 (agreeing that “legal transfer of title requires a judicial foreclosure”), Household Finance, for whatever reason, voluntarily dismissed its foreclosure lawsuit against the Skibbes about a year later.

         The mortgagee then evidently had a change of heart, as it filed another foreclosure lawsuit in June of 2013. This complaint alleged a default date of August 10, 2010, with an unpaid balance of roughly $1, 000 less than what was alleged in the first lawsuit, or $258, 542.72. Despite this later-pled default date, the record shows that the Skibbes had not made a payment since April 2010. See, ECF No. 46 (Countercl.) at 19 ¶ 7; ECF No. 72, Ex. B, at 10:7-12:18; United States Bank Tr., N.A. v. Skibbe, 2016 IL App (2d) 151143-U, ¶¶ 8-9.

         In October 2013, the Skibbes converted their Chapter 13 bankruptcy to Chapter 7. The effect of this conversion on the present matter is unclear. The parties, however, do not dispute that the Skibbes did not amend their statement of intention to surrender the subject property at any point during their Chapter 7 bankruptcy. Sometime after the conversion, Household Finance voluntarily dismissed its second foreclosure complaint.

         In January 2014, the Skibbes received their bankruptcy discharge. The case closed some two months later, seemingly without any objections from Household Finance despite the fact that the Skibbes did not surrender the property and Household Finance had not successfully foreclosed on it. Indeed, the Skibbes never gave up possession of their house, and later that same year, Household Finance transferred their mortgage loan to U.S. Bank Trust. U.S. Bank Trust then took the action that led to the Skibbes bringing this lawsuit: it had Nevel file a third foreclosure action against the couple.

         U.S. Bank Trust's lawsuit fared worse than the first two foreclosure actions. The state circuit court dismissed the suit with prejudice for violating Illinois's no-second-refiling rule. This rule came about as a result of the Illinois Supreme Court interpreting 735 ILCS 5/13-217 as allowing a case to be refiled just once. See, Timberlake v. Illini Hosp., 175 Ill.2d 159, 162-63 (1997) (“[735 ILCS 5/13-217] was not intended to permit multiple refilings of the same action. This court has interpreted section 13-217 as permitting only one refiling even in a case where the applicable statute of limitations has not yet expired.”). In reaching its decision to dismiss the case, the circuit court deemed the 2010 action to be the originally filed action, the 2013 action to be the first refiling, and the 2015 action to be the second - and thus barred - refiling. The court further denied U.S. Bank's motion for reconsideration, giving no weight to the argument that the Skibbes were unfairly getting a “free house” as a result of the court turning away the foreclosure suit. See, ECF No. 72, Ex. B (Ruling on Mot. Reconsider), at 13:18-14:21.

         The Illinois appellate court affirmed the dismissal. Skibbe, 2016 IL App (2d) 151143-U, ¶ 11. It explained that 735 ILCS 5/13-217 “applies to all claims raised in the original action as well as all claims that grew out of the same transaction involved in the original action.” Id. ¶ 6. The court rejected the argument that the 2015 foreclosure action was not a second refiling of the original 2010 action because the 2015 action, like the 2013 complaint but unlike the 2010 complaint, alleged a default date of August 2010 and not April 2010. As the appellate court stated, “in contrast to what plaintiff alleges on appeal, the 2010, 2013, and 2015 complaints all involve the same transaction, i.e., defendants' failure to make any payments on their mortgage since April 2010.” Id. ¶ 8.

         Having won, the Skibbes went on the offensive. They filed this federal lawsuit alleging that U.S. Bank Trust and Nevel violated the Fair Debt Collection Practices Act (“FDCPA”) and the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”) in instituting the third foreclosure action. U.S. Bank Trust hit back with four counterclaims, including promissory estoppel, set-off, constructive trust, and equitable lien. The nub of the counterclaims is that the Skibbes should be compelled to pay the Bank, in one way or another, for their “free house.” U.S. Bank Trust proposed as remedies an award of damages, a surrender of the property, an imposition of a constructive trust, or a creation of an equitable lien.

         The Skibbes now bring this Motion to Dismiss the Counterclaims on both Rule 12(b)(1) and 12(b)(6) grounds. For the reasons discussed below, the Court finds dismissal appropriate because of res judicata. It therefore does not reach the Skibbes' Rule 12(b)(6) arguments regarding the adequacy of U.S. Bank Trust's pleadings.

         II. ANALYSIS

         Although the Court ultimately concludes that U.S. Bank Trust's counterclaims are barred by res judicata, it first addresses its jurisdiction to decide the issue. See, Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94-95 (1998) (“Without jurisdiction the court ...


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