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United States v. Hillcrest Resort, Inc.

United States District Court, C.D. Illinois, Rock Island Division

November 18, 2019




         Before the Court are Plaintiff United States of America's Motion to Approve the Marshal's Report and Confirm Judicial Sale (“Motion to Confirm Sale”), ECF No. 86, Defendants Hillcrest Resort, Inc. (“Hillcrest”) and Terri Kosth's (“Defendants”) Motion to Vacate Marshal's Sale, ECF No. 96, Magistrate Judge Jonathan Hawley's Report and Recommendation (“R&R”), ECF No. 100, which recommends granting Defendants' motion and denying the United States' motion, and the United States' objection to the R&R, ECF No. 101. Also before the Court are the United States' Motion Requesting an Expedited Ruling, ECF No. 102, and the United States' Motion for Leave to File a Reply, ECF No. 105. For the reasons that follow, the objection is SUSTAINED IN PART and OVERRULED IN PART, and the R&R is ADOPTED IN PART and REJECTED IN PART. The Motion Requesting an Expedited Ruling and the Motion for Leave to File a Reply are GRANTED. The Court defers ruling on the remaining motions pending an evidentiary hearing.


         On January 12, 1994, Hillcrest borrowed $151, 000 from the Small Business Administration (“SBA”), an agency of the United States Government. See Note, Compl. Ex. A, ECF No. 1-1 at 1-2.[1] As security, Hillcrest granted the SBA a mortgage on the property. Mortgage, Compl. Ex. B, ECF No. 1-1 at 3-6. The mortgage was later modified to reflect an increase in the principal sum on the loan to $190, 600. See Mod. Mortgage, Compl. Ex. D, ECF No. 1-1 at 8-9. After Hillcrest defaulted on the loan, the United States sought foreclosure of the mortgage. See Compl., ECF No. 1; Am. Compl., ECF No. 43.[2] The Court granted the United States' motion for summary judgment against Defendants and entered a judgment of foreclosure. Sept. 28, 2017 Order, ECF No. 69. The Court ordered that the property be sold by the United States Marshal for the Central District of Illinois at the Henry County Courthouse. Id. at 11-12.

         On March 9, 2018, the United States filed a notice indicating that the Marshal's sale would occur on July 10, 2018. 2018 Not. Marshal's Sale, ECF No. 72. The sale did not occur on that date. On March 13, 2019, the United States filed a second notice indicating that the Marshal's sale would occur on May 7, 2019. 2019 Not. Marshal's Sale, ECF No. 74. Later, the United States filed a certificate of publication. See Certificate of Publication, ECF No. 75. An agent of the Star Courier Newspaper certified that notice of the sale was published in that newspaper once a week from April 2, 2019 through April 23, 2019. Id. The certificate contained the contents of the notice published in the newspaper. Id.

         The sale occurred as planned on May 7, 2019. On July 22, 2019, the United States filed a certificate of purchase signed by the Marshal, which indicated that Daniel Roach had purchased the property for $285, 000 at the sale. Certificate of Purchase, ECF No. 83. The same day, the United States filed the Marshal's report of sale, which again indicated the purchaser and amount for which the property sold. Report of Sale, ECF No. 84. It also listed “[t]he total amount of indebtedness secured by the mortgage foreclosed herein and the Judgment of Foreclosure entered herein.” Id. ¶ 4. The Marshal reported that notice was given in accordance with 735 ILCS 5/15-1507(c), that the terms of the sale were fair, that the sale was conducted fairly and without fraud, and that justice was done by the sale. Id. ¶ 5. On July 25, 2019, the United States filed its Motion to Confirm Sale. Defendants obtained new counsel in early August and were granted an extension of time to file a response to the motion.[3] See Aug. 8, 2019 Text Order. On August 30, 2019, Defendants filed both a response to the motion, Resp. Mot. Confirm Sale, ECF No. 95, and their Motion to Vacate Marshal's Sale. The Court referred the motions to Judge Hawley for a recommended disposition. He filed his R&R on October 9, 2019, recommending granting Defendants' motion and denying the United States' motion. The United States objects to the R&R.


         I. Motion for Leave to File a Reply

         “No reply to [a] response is permitted without leave of Court.” CDIL-LR 7.1(B)(3). The United States argues that it seeks leave to file a reply in support of its objection to address issues raised for the first time in Defendants' response: whether it can cite to unpublished state court opinions and whether the case should be remanded to Judge Hawley for further proceedings. Mot. Leave File Reply 1. The motion is GRANTED and the Clerk is directed to file the proposed reply, ECF No. 105-1, on the docket. The Court agrees with the United States that Illinois Supreme Court Rule 23, which provides, in part, that non-precedential orders “may not be cited by any party except to support contentions of double jeopardy, res judicata, collateral estoppel or law of the case, ” Ill. Sup. Ct. R. 23(e)(1), is not binding on federal courts. But the Court cannot give an unpublished case precedential effect, so where the Court cites to unpublished Illinois cases, it does so only for their persuasive value. Cf., e.g., Mandelstein v. Rukin, No. 17-cv-9216, 2019 WL 3857886, at *7 n.7 (N.D. Ill. Aug. 16, 2019); Netherlands Ins. Co. v. Knight, No. 4:10-cv-04043-SLD-JEH, 2014 WL 3376873, at *2 (C.D. Ill. July 10, 2014).

         II. Report and Recommendation

         a. Legal Standard

         When a magistrate judge considers a pretrial matter dispositive of a party's claim or defense, he must enter a recommended disposition. Fed.R.Civ.P. 72(b)(1). Parties may object within fourteen days of being served with a copy of the recommended disposition. Id. 72(b)(2). The district judge considers de novo the portions of the recommended disposition that were properly objected to, and may accept, reject, or modify the recommended disposition, or return it to the magistrate judge for further proceedings. Id. 72(b)(3). If no objection, or only partial objection, is made the district judge reviews the unobjected to portions of the recommendation for clear error only. Johnson v. Zema Sys. Corp., 170 F.3d 734, 739 (7th Cir. 1999). But the district judge may “reconsider sua sponte any matter determined by a magistrate judge” even if no party objects. Schur v. L.A. Weight Loss Ctrs., Inc., 577 F.3d 752, 760 (7th Cir. 2009).

         b. Analysis

         Judge Hawley recommends granting Defendants' Motion to Vacate the Marshal's Sale on the basis that the United States did not give proper public notice of the sale. R&R 6-9. The United States objects to this finding on multiple grounds. See Objection 2. The Court addresses this issue de novo.

         i. What Law Applies

         The United States raises a question as to what law applies, see Id. at 3, so the Court addresses this issue first. The United States brought this mortgage foreclosure action under 28 U.S.C § 1345, which provides district courts with original jurisdiction over “all civil actions, suits or proceedings commenced by the United States.” See Am. Compl. ¶ 1. Section 1345, however, does not dictate what law the court should apply.

         “‘[F]ederal law governs questions involving the rights of the United States arising under nationwide federal programs,' [but] state law supplies the content of federal law unless Congress has established distinctively federal rules.” United States v. Einum, 992 F.2d 761, 761-62 (7th Cir. 1993) (quoting United States v. Kimbell Foods, Inc., 440 U.S. 715, 726 (1979)). The Court, therefore, generally applies the substance of the Illinois Mortgage Foreclosure Law (“IMFL”), 735 ILCS 5/15-1101-1706. See United States v. Torres, 142 F.3d 962, 966-67 (7th Cir. 1998) (applying the IMFL in a foreclosure action brought by a government agency), overruled on other grounds by Hill v. Tangherlini, 724 F.3d 965, 967 n.1 (7th Cir. 2013); United States v. LaSalle Nat'l Tr., 807 F.Supp. 1371, 1371 (N.D. Ill. 1992) (same). Even if federal law applied, federal law requires that a court-ordered sale of ...

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