United States District Court, N.D. Illinois, Eastern Division
In re CAROL S. ANDERSON and MARK R. ANDERSON, Debtors.
BMO HARRIS BANK, N.A., Appellee. CAROL S. ANDERSON and MARK R. ANDERSON, Debtors-Appellants,
MEMORANDUM OPINION AND ORDER
JORGE ALONSO United States District Judge
Carol S. Anderson and Mark R. Anderson appeal to this Court,
pursuant to 28 U.S.C. § 158(a)(1), from a decision of
the United States Bankruptcy Court. For the following
reasons, the bankruptcy court's decision is reversed.
appeal stems from the consolidated bankruptcy case of debtors
Carol S. Anderson and Mark R. Anderson. Their initially
separate Chapter 7 involuntary bankruptcy cases, both filed
in October 2013, were converted to Chapter 11 and
consolidated on March 4, 2014. Prior to consolidation, BMO
Harris Bank, N.A. (“BMO”), as successor in
interest to Amcore Bank, N.A, filed proofs of claim in each
of the debtors' individual cases to assert a claim
against Mark based on a promissory note in the amount of
$697, 000, secured by property located at 151 West Wing
Street, Unit 905, f/k/a 201 West Wing Street, Arlington
Heights, Illinois (“the Wing St. Property”).
Wing St. Property was also the subject of a foreclosure
action that BMO brought against Mark and others in 2009 in
the Circuit Court of Cook County, case number 09-CH-34081
(“the Wing St. Foreclosure Action”). In May 2013,
in the Wing St. Foreclosure Action, BMO filed a Second
Amended Complaint consisting of two counts: Count I, in which
BMO sought a judgment of foreclosure and a deficiency
judgment against Mark and co-defendant Walter Kaiser; and
Count II, in which BMO alleged breach of contract against
Mark and Kaiser for failing to make payments required under
the promissory note.
five months later, the filing of debtors' bankruptcy
cases automatically stayed the Wing St. Foreclosure Action
pursuant to 11 U.S.C. § 362. On December 20, 2014, BMO
moved in the bankruptcy court for relief from the automatic
stay, seeking leave to proceed with the Wing St. Foreclosure
Action. (Appellant Designation of R. on Appeal (hereinafter,
“R.”) at 145, ECF No. 12-2.) The bankruptcy court
granted the motion, entering an order (“the Stay Relief
Order”) granting “full and complete relief from
the Automatic Stay of Section 362 to permit BMO HARRIS BANK
to proceed with the pending State Court foreclosure
litigation with respect to the property commonly known as 151
W. Wing St., Unit 905, Arlington Heights, Illinois 60005 as
more particularly described in the Motion for Relief.”
(R. at 855, ECF No. 16.)
Wing St. Foreclosure Action resumed, and on January 23, 2015,
the Circuit Court of Cook County entered an Amended Order of
Summary Judgment and Judgment of Foreclosure and Sale in the
Wing St. Foreclosure Action. Specifically, according to the
terms of the order, the court entered “Judgment of
Foreclosure under Counts I and II of the Second Amended
Complaint for Mortgage Foreclosure . . . pursuant to 735 ILCS
5/15-1506 in favor of plaintiff, BMO Harris, against
Defendants Mark R. Anderson (in rem); Walter Kaiser
(in personam);” and others, and ordered a
judicial sale of the Wing St. Property. (R. at 637, ECF No.
12-7.) On April 8, 2015, the circuit court entered an order
confirming the sale of the Wing St. Property and providing
that “[a]n in rem deficiency judgment is
ordered in favor of the Plaintiff, BMO Harris Bank, N.A., . .
. and against Defendant Mark Anderson, ” and
“an in personam deficiency judgment is ordered
in favor of the Plaintiff, BMO Harris Bank, N.A., . . . and
against defendant Walter Kaiser pursuant to his obligations
under the Promissory Note, in the . . . total amount of $646,
396.33.” (R. at 352-53, ECF No. 12-5.)
January 27, 2016, in the consolidated bankruptcy action,
debtors filed an objection to BMO's claim against Mark
arising out of the promissory note, arguing that, having
already fully litigated the Wing St. Foreclosure Action
against Mark to final judgment in state court, BMO was barred
by res judicata from litigating Mark's liability
under the promissory note again. BMO filed an amended proof
of claim in which it reduced the amount of its claim, but it
maintained its claim in the amount of $646, 396.33, the
deficiency after the sale of the Wing St. Property, and it
maintained its right to seek that amount from Mark
personally, arguing that the foreclosure judgment against
Mark had been in rem, not in personam. The
bankruptcy court overruled the objection as
“premature.” (Opening Br. of Appellant, App.,
April 14, 2016 Tr. at 11:15-16, ECF No. 22-1.) The court
explained that it had “never understood the bifurcation
of foreclosure cases, ” and it had sympathy for debtors
because there “should be some effort to get them
resolved” all at once, rather than piecemeal
(id., Tr. at 11:16-19), but nevertheless, in the
court's experience, Illinois courts commonly permit
creditors to pursue in personam deficiency judgments
separately from foreclosure (id., Tr. at
12:23-13:3). Debtors cited a recent case of the Illinois
Appellate Court, LSREF2 Nova Investments III, LLC v.
Coleman, which held that a creditor who had already
received an in rem judgment against the borrower in
a foreclosure action was barred from subsequently seeking an
in personam deficiency judgment on the promissory
note because “res judicata bars not only what
was actually decided in the first action but, also, whatever
could have been decided.” 33 N.E.3d 1030, 1034, 1037
(Ill.App.Ct. 2015) (citing In re Liquidation of Legion
Indem. Corp., 870 N.E.2d 829, 834 (Ill.App.Ct. 2007)).
The bankruptcy court was unmoved, explaining that it still
had doubts based on the fact that “Illinois allows all
this stuff to be pursued at different times in different
ways, ” and, because Illinois law was so
“unstructured” in that respect, the court
overruled the objection. (Opening Br., App., Tr. at 12:25-25,
13:18.) Debtors appeal that ruling.
Court has jurisdiction to review “judgments, orders and
decrees” issued by the bankruptcy court. 28 U.S.C.
§ 158(a)(1). “A bankruptcy court's findings of
fact are reviewed for clear error, and its conclusions of law
are reviewed de novo.” In re Midway Airlines,
Inc. 383 F.3d 663, 668 (7th Cir. 2004) (citing In re
Smith, 286 F.3d 461, 464-65 (7th Cir. 2002)).
appeal, as in the bankruptcy court, debtors argue that BMO is
barred by res judicata from seeking to establish
Mark's personal liability under the promissory note
because BMO litigated that issue to final judgment in the
Wing St. Foreclosure Action. BMO responds by arguing that the
bankruptcy court correctly ruled that the Wing St.
Foreclosure Action does not bar BMO from collecting from Mark
on the promissory note because the judgment against him was
in rem, not in personam, and Illinois law
recognizes that foreclosure of a mortgage and damages for
breach of a promissory note are distinct, independent
remedies. Further, BMO argues that it could not have obtained
an in personam judgment against Mark, even if it had
sought one, because it had no authority to litigate its
claims against him personally while his bankruptcy
proceedings were pending; it had only sought (and only
received) relief from the automatic stay in order to proceed
with foreclosure to protect its interest in the Wing St.
Property, not to proceed against Mark personally. The Court
will address the latter argument first.
SCOPE OF RELIEF FROM STAY
a petition in bankruptcy is filed, the automatic stay
provisions of 11 U.S.C. § 362 take effect and prevent
creditors from taking any action to collect on their
debts.” In re Jepson, 816 F.3d 942, 945 n.4
(7th Cir. 2016). However, if a creditor holds a mortgage
secured by property worth less than the debtor owes, then
“bankruptcy proceedings may only delay the inevitable
result, ” and “[t]here may be no reason to make
the creditor wait until the final distribution of the estate
to get what it bargained for, ” so “Congress
included a provision for relief from the automatic stay[, ]
§ 362(d)”. In re Vitreous Steel Prod.
Co., 911 F.2d 1223, 1231-32 (7th Cir. 1990).
“Under certain circumstances the bankruptcy court may
lift the stay under that section, either for cause, including
lack of adequate protection of a creditor's interest, or
. . . the stay may be lifted if the debtor has no equity in
the collateral and the collateral is not necessary to an
effective reorganization of the debtor.” Id.
362(d) does not require relief from an automatic stay to take
a particular form; the statute states that, where relief is
warranted, the bankruptcy court “shall grant relief . .
. such as by terminating, annulling, modifying, or
conditioning such stay.” 11 U.S.C. § 362.
“Therefore, the Court has considerable flexibility to
fashion relief” that is appropriate to a particular
case. In re Ascher, 146 B.R. 764, 772 (Bankr.
N.D.Ill. 1992) (citing 2 Collier onBankruptcy ¶ 362.07). To ...