LPP Mortgage Ltd v. Hartzell Glidden Tucker & Hartzell et al

Filing 57

ORDER by Magistrate Judge John A. Gorman: The motion for partial summary judgment 49 is GRANTED as to the affirmative defenses of mitigation and intervening proximate cause. The Court believes that the rulings herein may be dispositive of many, if not all, remaining issues. This matter is therefore set for a telephone status conference on Thursday, June 16, 2011, at 9:30 a.m. At that conference, the parties shall be prepared to clearly articulate what legal issues remain and what factual disputes are pertinent to those legal issues. Entered on 6/14/11. (WW, ilcd)

E-FILED

Tuesday, 14 June, 2011 10:48:32 AM
Clerk, U.S. District Court, ILCD
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS

LPP Mortgage Ltd.,
Plaintiff
v.
Hartzell, Glidden Tucker & Hartzell; and
Thomas F. Hartzell,
Defendants

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Case No. 08-1303

ORDER and OPINION
The parties have consented to have this case heard to judgment by a United States Magistrate
Judge pursuant to 28 U.S.C. § 636(c), and the District Judge has referred the case to me. Now before
the Court is Plaintiff’s motion for partial summary judgment (#49). The motion is fully briefed, and
I have carefully considered the arguments and evidence submitted by the parties. As explained
herein, the motion is granted.
JURISDICTION AND VENUE
Plaintiff LPP Mortgage Ltd. is a limited partnership organized under Texas law, with its
principal place of business in Texas. Its sole general partner is Property Acceptance Corporation,
which is a corporation incorporated under the laws of Texas and having its principle place of
business in Texas. The sole limited partner of LPP is Beal Nevada Corporation, incorporated under
the laws of Nevada with its principle place of business in Nevada.
Defendant Hartzell Glidden Tucker & Hartzell is a general partnership organized under the
laws of Illinois and having its principle place of business in Illinois. Its partners - Franklin M.
Hartzell, John R. Glidden, Stanley L. Tucker, and Defendant Thomas F. Hartzell - are each citizens
of Illinois.

The amount in controversy is alleged to exceed $75,000.
The parties being of diverse citizenship and the amount in controversy being in excess of the
statutory minimum, this Court has jurisdiction over the subject matter of this dispute pursuant to 28
U.S.C. 1332.
A substantial part of the events giving rise to this action occurred in Hancock, Illinois, a
county within the Central District of Illinois, Peoria Division. Venue is therefore proper in this
Court.
SUMMARY JUDGMENT GENERALLY
The purpose of summary judgment is to "pierce the pleadings and to assess the proof in order
to see whether there is a genuine need for trial." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986). Under Rule 56(c) of the Federal Rules of Civil Procedure,
summary judgment should be entered if and only if there is no genuine issue as to any material fact,
and the moving party is entitled to judgment as a matter of law. See Jay v. Intermet Wagner Inc., 233
F.3d 1014, 1016 (7th Cir.2000); Cox v. Acme Health Serv., 55 F.3d 1304, 1308 (7th Cir. 1995).
In ruling on a summary judgment motion, the court may not weigh the evidence or resolve
issues of fact; disputed facts must be left for resolution at trial. Anderson v. Liberty Lobby, Inc., 477
U.S. 242 (1986). The court's role in deciding the motion is not to sift through the evidence,
pondering the nuances and inconsistencies, and decide whom to believe. Waldridge v. American
Hoechst Corp., 24 F.3d 918, 922 (7th Cir.1994). The court has one task and one task only: to decide,
based on the evidence of record, whether there is any material dispute of fact that requires a trial.

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FACTS
In August of 2000, LPP Mortgage Ltd. (“LPP”)1 purchased a bundle of mortgages and
promissory notes from the Small Business Administration (“SBA”). Included was a promissory note
(the “Note”) secured by a mortgage (the “Mortgage”) on real property located in Nauvoo, Illinois.
The Note was in default, and in January of 2001, LPP retained the law firm of Hartzell, Glidden,
Tucker & Hartzell to foreclose the Mortgage. A partner in that law firm, Thomas Hartzell, was
primarily responsible for representation of LPP in the foreclosure action. Unless otherwise required
by context, the law firm and Thomas Hartzell will be referred to cumulatively as “Hartzell” in this
Opinion.
On behalf of LPP, Hartzell filed a complaint of foreclosure on the Mortgage and Note in the
Circuit Court of Hancock County Illinois, LPP Mortgage v. John Condren, et al, Case No. 01-CH23. The complaint alleged, inter alia, that the Mortgage had been assigned to LPP by the SBA.
Defendants denied that allegation and “demanded strict proof thereof.”
The Hancock County court held a bench trial on November 16, 2006. (Partial transcript of
trial and transcript of Court’s ruling are included as Exhibits 1 and 2 to Hartzell’s response to the
instant motion). At trial, Hartzell introduced as evidence the assignment of the Note. The contents
of the assignment required that a power of attorney be prepared and recorded, showing that the
person signing the assignment was authorized by SBA to make the assignment. At the close of
LPP’s case, the trial court directed a verdict against LPP, because no completed and recorded power

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As noted in the Jurisdiction section above, the limited partner in LPP is Beal Nevada
Corporation. Although the parties to this action have not made it clear, the transcript of the state
court proceedings (Exh. 5 to Response) indicates that LPP was formerly known as Beal Bank.
Neither party has ascribed any significance to the distinction, so the Court will do likewise.
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of attorney had been introduced; all that was in the record was a power of attorney, never recorded
and invalid after June 1, 2001. The evidence was, according to the trial court, insufficient to
establish that SBA had validly assigned the Mortgage to LPP. Without such evidence, the court held
that LPP lacked standing to enforce the Mortgage. Judgment was entered against LPP on January
9, 2007.
At the same time as and also pending in Hancock County was a quiet title action, brought
by the owner of the Nauvoo property against LPP, C. Michael Trapp et al v. LPP Mortgage, Case
No. 01-CH-12. LPP was represented by counsel, but not by Hartzell, in the quiet title action. At a
hearing held on January 9, 2007, the state court judge declined to quiet title in favor of either party,
because the Mortgage on record was in favor of the SBA, which was not a party to the litigation but
“may have a claim against the property.” The quiet title action remained pending but inactive until
it was dismissed for lack of prosecution on March 27, 2009.
Before the quiet title action was dismissed but after the trial court’s ruling, Hartzell claims
that he advised LPP to file a counterclaim for quiet title. LPP retained counsel to assess that advice.
That counsel advised LPP that a counterclaim would be barred by principles of res judicata, given
the ruling in the foreclosure action. LPP and its counsel in the quiet title action did not take
Hartzell’s advice, relying instead on their newly-retained counsel’s legal opinion that any such new
claim would be futile.
A month later, on February 8, 2007, Hartzell on behalf of LPP filed a motion in the
foreclosure action, seeking to reopen proofs and asking the court to reconsider and to set aside the
judgment. (Exh. 4 to Hartzell’s Response). The motion stated that the failure to record the power
of attorney from SBA to LPP was not grounds for the directed finding against LPP. Discussing cases

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establishing that recording of a mortgage was sufficient notice of the lien on property, even without
recording an assignment, Hartzell argued that Illinois law does not require that subsequent
assignment of a mortgage be recorded in order for the mortgage lien to survive. In addition it
appears that, at the time the motion was filed, Hartzell had located a properly executed power of
attorney, had it recorded, and produced it to LPP. Despite 5 years of discovery in the foreclosure
case, this document had not been previously produced.
Both of these motions were denied at a hearing on April 16, 2007.(Transcript of hearing
attached to Response #50 as Exhibit 5). Denial of the motion to reconsider was based on the total
lack of proof of an assignment of the Mortgage in favor of LPP. Denial of the motion to reopen
proof was based in significant part on Hartzell’s failure to move to reopen proof immediately upon
the court’s ruling at the close of LPP’s case, rather than waiting to raise the issue in later motions.
To represent it on appeal, LPP retained counsel other than Hartzell In the appellate brief,
LPP’s counsel included five pages of argument for the proposition that assignment of a debt secured
by a mortgage transfers ownership of the mortgage. It further argued that there had been no waiver
of this argument, even though “it may not have articulated the argument as fully [in the trial court]
as it has on appeal.” (Exh. 9 to Response).
The Third District of the Illinois Appellate Court affirmed the trial court. The Opinion itself
is not in the record, but LPP’s Statement of Fact (unopposed in Defendants’ Response) summarizes
the conclusions of the Appellate Court as follows. The Appellate Court found that LPP had failed
to meet its initial burden in the trial court of presenting a prima facie case; had waived the argument
that assignment of the Note was sufficient to transfer ownership of the Mortgage by failing to raise
that argument in the trial court; and had failed to produce in the trial court any evidence sufficient

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to support its assertion that a valid assignment of the Mortgage took place. LPP’s petition for leave
to appeal to the Illinois Supreme Court was denied.
LPP then filed the instant legal malpractice case. This complaint alleges that Hartzell had
a duty to LPP that it negligently breached, causing damage to LPP. In the Answer, Hartzell raised
two affirmative defenses (Doc. #20), captioned “comparative fault” and “mitigation of damages.”
An additional affirmative defense was later filed (Doc. #48), captioned “proximate cause.” The
motion for partial summary judgment attacks the affirmative defenses of mitigation and proximate
cause.
DISCUSSION
Mitigation Defense
In this affirmative defense, Hartzell asserts that LPP failed to mitigate its damages by “failing
to take steps to enforce or protect their alleged legal interests in certain real property situated in
Nauvoo, Illinois.” Specifically, Hartzell asserts that LPP should have followed the advice Hartzell
gave to LPP, namely that LPP should file a counterclaim in the quiet title action, rather than the
advice of its counsel in the quiet title action, namely not to file a counterclaim in the quiet title action
because such a counterclaim would be barred by res judicata.
“Under the doctrine of res judicata, ‘a final judgment on the merits of an action precludes
the parties or their privies from relitigating issues that were or could have been raised in that action.’
” Highway J Citizens Group v. United States Dept. of Transp., 456 F.3d 734, 741 (7th Cir. 2006)
(quoting Allen v. McCurry, 449 U.S. 90, 94 (1980)). There are three requirements for res judicata:
“(1) an identity of the parties or their privies; (2) an identity of the causes of action; and (3) a final
judgment on the merits.” Id.

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Here there is no dispute that the parties in the quiet title action were the same as the parties
in the foreclosure action, nor is it disputed that the judgment in the foreclosure action was a final
judgment. The second element, identity of the causes of action, requires more analysis.
There is an identity of causes of action if a later claim emerges from the same core of
operative facts as an earlier action. Id. . “[T]wo claims are one for purposes of res judicata if they
are based on the same, or nearly the same, factual allegations.” Herrmann v. Cencom Cable Assoc.,
Inc., 999 F.2d 223, 226 (7th Cir. 1993) (citations omitted). In other words, “a subsequent suit is
barred if the claim on which it is based arises from the same incident, events, transaction,
circumstances, or other factual nebula as a prior suit that had gone to final judgment.” Okoro v.
Bohman, 164 F.3d 1059, 1062 (7th Cir. 1999). See also, Brzostowski v. Laidlaw Waste Sys., Inc.,
49 F.3d 337, 339 (7th Cir. 1995)(“While the legal elements of each claim may be different, the
central factual issues are identical.”) .
The two state court actions were based on the same factual allegations. Whether foreclosure
or quiet title, the facts arose from LPP’s purchase of the Note. Whether LPP had the legal ability to
enforce the Mortgage (i.e. foreclose) or whether the owner of record had the right to clear its title
in light of that Note (i.e. quiet title) depended in significant part on the ownership of the Note and
Mortgage and the legal ramifications that flowed from them. Indeed, the parties do not assert that
the underlying facts were sufficiently different to defeat this element.
Thus, the three requirements have been shown. “If these requirements are fulfilled, res
judicata ‘bars not only those issues which were actually decided in a prior suit, but also all other
issues which could have been raised in that action.’ ” Highway J., 456 F.3d at 741, quoting Allen,
449 U.S. at 94. That would appear to answer the question in favor of LPP: filing of a counterclaim

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would have been futile because it would have been barred by res judicata. See, e.g. River Park Inc.
v. City of Highland Park, 703 N.E.2d 883 (Ill.1998).
Hartzell, however, characterizes the trial court’s ruling as a finding that LPP lacked standing
to pursue a foreclosure action and asserts the doctrine of res judicata does not apply to issues of
standing. In support of that assertion, Hartzell submits the testimony of three expert witnesses, all
lawyers retained for, inter alia, the purpose of rendering opinions about the doctrine of res judicata.2
Although the depositions of these experts have been placed in the record, their Rule 26 reports
appear nowhere. In the questioning of these experts, they were entirely unable to cite case law to
support their opinions. Whether case law appeared in their reports is unclear. Their depositions are
of no assistance in resolving this motion.
In Perry v. Sheahan, 222 F.3d 309 (7th Cir.2000)(Perry II), an earlier case (Perry I) had been
dismissed for failure to demonstrate standing and hence for lack of subject matter jurisdiction. While
acknowledging that such a dismissal is not a judgment on the merits under Fed.R.Civ.P. 41(b), the
Court of Appeals held:
Although only judgments on the merits preclude parties from litigating the same cause of
action in a subsequent suit, that does not mean that dismissals for lack of jurisdiction have
no preclusive effect at all. A dismissal for lack of jurisdiction precludes relitigation of the
issue actually decided, namely the jurisdictional issue. The difference is in the type of
preclusion, not the fact of preclusion. A judgment on the merits precludes relitigation of any
ground within the compass of the suit, while a jurisdictional dismissal precludes only
relitigation of the ground of that dismissal and thus has collateral estoppel (issue preclusion)
effect rather than the broader res judicata effect that nowadays goes by the name of claim

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The general rule is that expert testimony is not admissible on questions of law. U.S. v.
Farinella, 558 F.3d 695, 700 (7th Cir. 2009); Good Shepherd Manor Foundation v. City of
Momence, 323 F.3d 557, 564 (7th Cir. 2003). This general rule may not apply with full force in
legal malpractice cases. See, e.g., Middle Mkt. Fin. Corp. v. D’Orazio, - F. Supp. 2d -, 2002 WL
31108260, at *8-9 (S.D.N.Y.2002). This question is not presented here, but it will be considered
prior to trial of this matter.
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preclusion. Therefore, Perry cannot escape the preclusive effect of Perry I by the rote
intonation that this is not a judgment on the merits. The determination that Perry lacked
standing in Perry I precludes relitigation of the same standing argument in Perry II.
Id. at 317 -318
The State trial court ruled that LPP lacked standing to foreclose on the particular Mortgage
at issue in the foreclosure action, and that the failure to demonstrate valid assignment meant that the
SBA might still have an interest in the property, thereby preventing quieting of the title. As
demonstrated in Perry, those rulings cannot be relitigated. Whether res judicata or collateral
estoppel is the foundation of that statement matters not one bit. The finding of lack of standing was
made final in the State courts, and this Court will not disturb that determination.
Hartzell’s argument on this matter ignores one additional crucial matter: the Illinois Court
of Appeals also held that LPP had failed to meet its initial burden of proof in the foreclosure action.
Judgment entered as a failure to meet a burden of proof is a judgment on the merits, and regardless
of whether the failure was one of fact, law, or application of law to facts, preclusion applies. Du
Page Forklift Svc., Inc. v. Material Handling Systems, Inc., 744 N.E.2d 845, 852 (Ill.2001). Had
LPP tried to counterclaim in the quiet title action, it would have been prevented from presenting
evidence that was or could have been presented in the foreclosure action.
What does this means for the mitigation defense raised by Hartzell? The question that must
be answered is whether counsel for LPP in the quiet title action had the opportunity to correct any
error made by counsel for LPP in the foreclosure action. I conclude that there was no such
opportunity. Given that the two cases were pending at the same time, in the same court, before the
same judge, a counter-claim for quiet title raised by LPP against the very parties who had been sued
in the foreclosure action, based on the same documentation (or lack thereof) would have either

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suffered the same outcome as the foreclosure action (a finding of lack of standing, affirmed on
appeal) or the claim would have been dismissed on grounds of preclusion. Either way, there was no
opportunity for LPP to have “mitigated” Hartzell’s error.
I therefore conclude that there is no merit to the mitigation defense. The motion for summary
judgment on that defense is therefore GRANTED.
Proximate Cause Defense
This affirmative defense sets out what Hartzell claims to be the real proximate cause of any
damages suffered by LPP, namely successor counsel’s conduct. Under Illinois law, where the acts
of a third person intervene between the defendant’s conduct and the plaintiff’s injury, the
defendant’s conduct is not the proximate cause of the injury unless “the defendant could reasonably
foresee the intervening act.” Robinson v. Boffa, 930 N.E.2d 1087 (Ill.App.2010), Bentley v.
Saunemin Twp., 413 N.E.2d 1242 (Ill.1980).
There are several fatal problems with this defense. First, Hartzell asserts that LPP’s counsel
in the quiet title action was negligent by failing to “file a counter claim to enforce the mortgage in
the Quiet Title Action.”. (Amendment to Affirmative Defenses, ¶36 (Docket #48). Because such a
counterclaim would have been precluded, as discussed above, filing it would have been futile;
failing to file a precluded claim simply cannot constitute negligence, nor could that failure have
proximately caused injury to LPP.
Hartzell next asserts that LPP’s counsel in the appeal of the foreclosure action (the same
counsel as represented LPP in the quiet title action) was negligent “by failing to sufficiently brief
and argue that Defendants raised the issue that the owner and holder of a promissory note could
enforce the attendant mortgage.” (Amendment to Affirmative Defenses, ¶35 (Docket #48). In other

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words, Hartzell believes that, had the issue been sufficiently briefed, the appellate court would have
reversed the trial court, thereby eliminating injury to LPP. It was this failure, maintains Hartzell, that
proximately caused any damages to LPP, and not anything Hartzell did in the trial court.
This argument overlooks one key factor: it is black letter law that an issue not raised in the
trial court cannot be raised for the first time on appeal. So if Hartzell did not argue in the trial court
that ownership of the Mortgage followed assignment of the Note, then this argument could not be
raised on appeal for the first time. The Appellate Court ruled that the argument had not been raised
in the trial court and, as a result, the argument had been waived.
This Court cannot consider whether that ruling was correct. The Rooker-Feldman doctrine
precludes lower federal courts from exercising jurisdiction over claims that would require them to
review a final judgment of a state court. Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923); District
of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983). Review of state court judgments
is possible only in the state court system and from there to the United States Supreme Court. Garry
v. Geils, 82 F.3d 1362, 1366 (7th Cir. 1996).
Actions brought by “state-court losers complaining of injuries caused by state-court
judgments rendered before the district court proceedings commenced and inviting district court
review and rejection of those judgments” are jurisdictionally barred. Exxon Mobil Corp. v. Saudi
Basic Indus. Corp., 544 U.S. 280, 284 (2005), quoted in Hukic v. Aurora Loan Services 588 F.3d
420, 431 -432 (7th Cir. 2009). See also, Lance v. Dennis, 546 U.S. 459, 463 (2006)(the doctrine
prevents a party from effectively trying to appeal a state-court decision in federal court). The
doctrine applies not only to claims that were actually raised before the state court, but also to claims
that are inextricably intertwined with the state court determinations. Ritter v. Ross, 992 F.2d 750,

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753 (7th Cir. 1993). The key inquiry is whether the district court is in essence being called upon to
review the state court decision. Id. at 754.
No aspect of this legal malpractice case can include evaluation of the question whether the
State courts were correct in their rulings. Thus, Hartzell’s assertion that it did in fact sufficiently
raise the ownership issue is a non-starter. The Appellate Court’s finding of waiver was not based
on inadequacy of the briefing on the question; it was based on the failure to raise the issue in the trial
court. Any conduct by successor counsel with respect to the substance or adequacy of the legal brief
on this question is therefore precluded by the finding that the argument was not made by Hartzell
in the first instance. This Court lacks jurisdiction to review these rulings.
Because it cannot be disputed that Hartzell failed to make the proper legal argument (i.e. that
the mortgage follows the note) in the trial court, then successor counsel could have committed no
intervening negligence unless LPP could file a second lawsuit against the property owner, properly
proving up ownership of the mortgage. The question becomes - as it did with the mitigation defense
above, whether such a lawsuit would be barred by res judicata/collateral estoppel.
The outcome as to preclusion is no different for this defense than it was for mitigation. The
argument that the Mortgage follows the Note could have been made in the trial court. It was not, and
there was nothing successor counsel could have done to change that omission. There was no
intervening negligence on the part of successor counsel, so the defense that successor counsel’s
representation constituted an intervening proximate cause is rejected. The motion for summary
judgment is granted.

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CONCLUSION
For the reasons stated herein, the motion for summary judgment is GRANTED as to the
affirmative defenses of mitigation and intervening proximate cause. The Court believes that the
rulings herein may be dispositive of many, if not all, remaining issues. This matter is therefore set
for a telephone status conference on Thursday, June 16, 2011, at 9:30 a.m. At that conference, the
parties shall be prepared to clearly articulate what legal issues remain and what factual disputes are
pertinent to those legal issues.
ENTERED ON June 14, 2011
s/ John A. Gorman
JOHN A. GORMAN
UNITED STATES MAGISTRATE JUDGE

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