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Illinois App. Court (1st Dist) Holds Subsequent Foreclosure-Related Action Barred by Illinois ‘Single Refiling’ Rule

The Appellate Court of Illinois, First District, recently dismissed a mortgagee’s “breach of mortgage contract” action as an impermissible second refiling following prior voluntary dismissals of a 2011 foreclosure complaint and 2013 action for breach of the promissory note based upon the same note and mortgage.

In so ruling, the Appellate Court concluded that, despite the plaintiff mortgagee’s differing theories of relief based upon foreclosure sale and deficiency judgment and enforcement of the note itself in past suits, dismissal was warranted under Illinois law, because all of the complaints arose from a single group of operative facts and sought to obtain amounts owed by the borrowers under the terms of the note due to default.

A copy of the opinion in First Midwest Bank v. Cobo is available at:  Link to Opinion.

After two borrowers failed to make payments on their mortgage, a mortgagee’s predecessor in interest filed a foreclosure complaint in 2011 (“2011 foreclosure complaint”), and then voluntarily dismissed the action in 2013. A few weeks later, the current mortgagee (“mortgagee”) filed a complaint for breach of promissory note (“2013 breach of promissory note action”), which it subsequently voluntarily dismissed in 2015.

Approximately four months after that dismissal, the mortgagee filed the underlying two-count complaint for breach of contract and in the alternative, unjust enrichment (“2015 breach of contract complaint”) alleging default under the terms of the promissory note.

The borrowers moved to dismiss the complaint, arguing that it was barred by section 13-217 of the Illinois Code of Civil Procedure, which provides that if a plaintiff voluntarily dismisses a cause of action, “the plaintiff … may commence a new action within one year or within the remaining period of limitation, whichever is greater, … after the action is voluntarily dismissed by the plaintiff.” 735 ILCS 5/13-217.  However, the rule also permits only one refiling of a claim following a voluntary dismissal.

The trial court denied the borrowers’ motion to dismiss, concluding that although the foreclosure complaint and breach of mortgage contract action were “closely related,” they were not “part of the same transaction or occurrence.”  Accordingly, the trial court concluded that the instant 2015 breach of contract complaint did not constitute a second refiling of the 2011 foreclosure complaint, but a “first refiling of [mortgagee’s] 2013 breach of promissory note action under 13-217.”

After the borrowers’ motion to reconsider was denied, the borrowers answered the complaint and asserted affirmative defense, including: (i) that the breach of contract complaint was an improper second refiling of a voluntarily dismissed complaint, and; (ii) that the note attached to the breach of contract complaint was “no note at all, but rather a compilation of two unsigned pages of the Note and a third signature page from a rider to the Mortgage.”

The mortgagee moved to strike the affirmative defenses and for summary judgment, which was granted.  In entering summary judgment in favor of the mortgagee and against the borrowers, the trial court rejected the borrowers’ affirmative defenses and found that the mortgagee had established all necessary elements for its breach of contract claim.  Judgment was entered against the defendant borrowers in the amount of $308,192.56.  The instant appeal followed.

The Appellate Court first examined the borrowers’ argument that its motion to dismiss was improperly denied because the complaint was an improper second refiling of the 2011 foreclosure complaint.

As you may recall, in River Park, Inc. v. City of Highland Park, 184 Ill. 2d 290, 307 (1998), the Illinois Supreme Court adopted a “transactional” test to determine whether separate complaints involved the same cause of action, which holds that claims can “be considered part of the same cause of action even if there is not a substantial overlap of evidence, so long as they arise from the same transaction,” and that separate claims are “considered the same cause of action for purposes of res judicata if they arise from a single group of operative facts, regardless of whether they assert different theories of relief.” Id. at 311.

The Appellate Court found its previous ruling in LSREF2 Nova Investments III, LLC v. Coleman, 2015 IL App (1st) 140184, instructive in its application of the transactional test in the instant appeal.

In Coleman, the predecessor in interest to the mortgagee plaintiff filed a complaint for foreclosure and personal judgment for deficiency.  The trial court entered judgment of foreclosure and an in rem deficiency judgment against the borrower.  Approximately one year later, the plaintiff mortgagee filed a complaint seeking to enforce the promissory note against the borrower.  The trial court granted the borrower’s motion to dismiss based upon res judicata, and the appellate court affirmed the dismissal, finding that “[i]n the foreclosure action, plaintiff sought to foreclose on defendant’s property, but also explicitly sought a personal deficiency judgment against defendant. Plaintiff sought the personal deficiency judgment based on defendant’s obligations under both the promissory note and the mortgage” pursuant to section 15-1508(e) of the Illinois Mortgage Foreclosure Law (735 ILCS 5/15-1508(e) (West 2016)). Coleman, 2015 IL App (1st) 140184, ¶ 14.

Here, as in Coleman, the Appellate Court held that the single-count complaint, requesting foreclosure of the mortgage as well as a personal judgment for any deficiency, involves operative facts arising from both the mortgage and the promissory note.  Thus, for purposes of res judicata, the Court held that the same set of operative facts gave rise to the causes of action in the 2011 foreclosure complaint and the 2013 breach of note complaint.

Accordingly, the Appellate Court concluded that the mortgagee’s breach of contract action represented an improper second refiling in violation of section 13-217, and the trial court erred in failing to grant the borrowers’ motion to dismiss the breach of contract count.

The complaint, however, also alleged a count, in the alternative, for unjust enrichment.  Although the trial court made no explicit findings regarding this count, its order granting summary judgment “dispose[d] of the case in its entirety.”  Thus, the mortgagee argued on appeal that the trial court’s grant of summary judgment based upon unjust enrichment could be affirmed.

However, the Appellate Court disagreed, citing past precedent holding that the theory of unjust enrichment is inapplicable where an express contract — such as a note and mortgage — governs the parties’ relationship.  Karen Stavins Enterprises, Inc. v. Community College District No. 508, County of Cook, 2015 IL App (1st) 150356, ¶ 7; Gagnon v. Schickel, 2012 IL App (1st) 120645, ¶ 25.

Accordingly, the Appellate Court vacated and reversed the trial court’s order granting summary judgment in favor of the mortgagee, and dismissed the mortgagee’s complaint.

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