Community Banc Mortgage Corporation v. North Salem State Bank
Filing
14
OPINION: Defendant's Motion to Dismiss 10 is DENIED. Defendant shall file an Answer on or before June 8, 2015. (SEE WRITTEN OPINION) Entered by Judge Sue E. Myerscough on 5/21/2015. (GL, ilcd)
E-FILED
Thursday, 21 May, 2015 12:26:40 PM
Clerk, U.S. District Court, ILCD
IN THE UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION
COMMUNITY BANC MORTGAGE
CORPORATION, an Illinois
Corporation,
Plaintiff,
v.
NORTH SALEM STATE BANK,
an Indiana banking corporation,
Defendant.
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No. 15-3051
OPINION
SUE E. MYERSCOUGH, U.S. District Judge.
This cause is before the Court on the Defendant North Salem
State Bank’s Motion to Dismiss (d/e 10). On May 15, 2015, at
Defendant’s request, the Court heard oral argument on the Motion
and took the matter under advisement. The Court now finds that
the Complaint is not barred by the statute of limitations. The
Motion to Dismiss is denied.
I. BACKGROUND
On January 16, 2015, Plaintiff Community Banc Mortgage
Corporation filed a Complaint against Defendant North Salem
State Bank in the Circuit Court for the Seventh Judicial Circuit,
Sangamon County, Illinois. On February 19, 2015, Defendant filed
a Notice of Removal. The Complaint contains the following
allegations.
Plaintiff and Defendant were parties to a Secondary Mortgage
Market Agreement dated May 21, 1992, as amended by
Amendment to Secondary Mortgage Market Agreement dated
effective November 1, 1996 (collectively referred to as the
Agreement). Compl. ¶ 5. Pursuant to the Agreement, Defendant
originated residential mortgage loans and then sold such loans to
Plaintiff. Id. ¶ 6. Plaintiff thereafter sold the loans to the Federal
National Mortgage Association (“Fannie Mae”), the Federal Home
Loan Mortgage Corporation (“Freddie Mac”), and other secondary
mortgage market participants. Id. ¶ 6.
Under the Agreement, Defendant, identified in the Agreement
as “Third Party Lender,” warranted that:
1.
Mortgage loans are processed in compliance with
all applicable Federal, State, and Local laws, and
all FDIC, OCC, OTS, or Federal Reserve regulations
applicable to real estate lending;
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2.
Mortgage loans are processed, packaged, and
closed in accordance with Secondary Market
guidelines;
3.
Mortgage loans are originated, processed, and
closed by the Third Party Lender, or their
authorized representative. Third Party Lender is
responsible for actions of authorized
representatives as if Third Party Lender processed
or closed the loan;
4.
All documents and representations are true and
correct; and
5.
No builder, developer, property seller, or other
interested party to a transaction has participated
directly in the processing, packaging, or sale of any
mortgage sold to UCB1 [(Plaintiff)].
Compl. ¶ 7 (quoting Agreement ¶ E (d/e 1-1)). The Agreement also
contained an indemnification provision:
Third Party Lender [(Defendant)] fully indemnifies and
agrees to hold UCB [(Plaintiff)], its successors and
assigns, harmless from and against any and all losses,
claims, demands, actions, suits, damages, costs and
expenses (including reasonable attorneys’ fees) of every
nature and character that may arise or be made against
or incurred by UCB as a result of Third Party Lender’s
failure to perform its obligations, breach any warranties,
or misrepresent any certifications in connection with
this agreement.
Id. ¶ 8 (quoting Agreement ¶ F).
Plaintiff explains that Plaintiff is a wholly owned subsidiary of United
Community Bank (UCB). A 1999 Amendment to the Agreement substituted
Plaintiff as the purchaser of the loans. See Pl. Resp. at 13 n.1 (d/e 13).
1
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One of the loans originated by Defendant and purchased by
Plaintiff was a mortgage loan dated September 4, 2003, made to
Steven and Susan Wainman. Compl. ¶ 9. The mortgage loan was
in the amount of $100,000 and was to be secured by a first
mortgage on property owned by the Wainmans located at 624 E.
Walnut Street, Greencastle, Indiana (the Wainman Loan). Id.
Before the closing of the Wainman Loan, the real estate located at
624 E. Walnut Street, Greencastle, Indiana, was encumbered by
various pre-existing liens, including a mortgage in favor of National
City Bank that secured a line of credit provided by National City
Bank to the Wainmans. Id. ¶ 10.
The Wainman Loan was closed by Abstract and Title of
Putnam County, Inc. (the Closing Agent), at Defendant’s direction.
Compl. ¶ 11. Funds were disbursed through the closing agents,
including a disbursement made to National City Bank in an
amount necessary to satisfy the balance due to the existing line of
credit mortgage. Id. ¶ 12. The disbursement to National City
Bank was accompanied by an instruction that the line of credit be
terminated and the mortgage released by National City Bank. Id. ¶
13.
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After the closing of the Wainman Loan, the loan was
purchased by Plaintiff and, thereafter, Fannie Mae. Compl. ¶ 14.
Plaintiff retained the rights and obligations related to servicing the
Wainman Loan. Id.
In 2010, Plaintiff commenced foreclosure proceedings after
the Wainmans defaulted on the loan. Compl. ¶ 15. During the
foreclosure proceedings, it was discovered that the National City
Bank mortgage had not been released. Id. ¶ 16. PNC, as the
successor to National City Bank, claimed a first mortgage position
on the real estate securing an indebtedness of $11,986.75, plus
interest, fees, and costs, for sums advanced to the Wainmans. Id.
¶ 16.
In March 2012, Fannie Mae demanded that Plaintiff
repurchase the Wainman Loan, alleging that the loan was not
originated in accordance with the procedures required by Fannie
Mae because of the failure to obtain and record a release of the
National City Bank mortgage. Compl. ¶ 17. On or about April 20,
2012, Plaintiff complied with Fannie Mae’s demand and
repurchased the Wainman Loan at a cost of $110,002.20. Id. ¶ 18.
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The foreclosure was subsequently completed, and the
mortgage property was sold by Plaintiff. Compl. ¶ 19. Plaintiff
suffered a loss of $114,842.53 on the transaction. Id.
Plaintiff alleges that Defendant’s failure to obtain and record
a release of the National City Bank mortgage and the sale of the
Wainman loan to Plaintiff constituted a breach of Defendant’s
warranties and obligations to Plaintiff under the Agreement.
Compl. ¶ 21. Plaintiff further alleges that Defendant is required to
indemnify and hold Plaintiff harmless from any loss suffered by
Plaintiff arising from a breach of Defendant’s warranties under the
Agreement and from Defendant’s failure to perform its obligations
under the Agreement. Id. ¶ 20.
Plaintiff has demanded that Defendant indemnify it for the
loss suffered on account of Defendant’s breach, but Defendant has
not done so. Compl. ¶ 22. Plaintiff alleges damages in the amount
of $114,842.53, plus interest, attorney’s fees, and costs. Id. ¶ 23.
In March 2015, Defendant filed a Motion to Dismiss,
asserting that the cause of action is barred by the statute of
limitations.
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II. JURISDICTION
This Court has subject matter jurisdiction based on the
diversity of the parties and because the amount in controversy
exceeds $75,000. See 28 U.S.C. § 1332(a)(1); see also Compl. ¶ 1,
2 (indicating that Plaintiff is an Illinois corporation with offices
located in Sangamon County and Defendant is an Indiana banking
corporation). 2 Defendant concedes venue is proper in this district
because a substantial part of the events or omissions giving rise to
Plaintiff’s claim occurred in this district. Notice of Removal (d/e 1);
see also 28 U.S.C. § 1391(b)(2) (venue is proper in “a judicial
district in which a substantial part of the events or omissions
giving rise to the claim occurred”); 28 U.S.C. § 1441(a) (providing
that a state court action may be removed to the district court “for
the district and division embracing the place where such action is
pending”).
The Court confirmed on the Illinois Secretary of State website that Plaintiff is
incorporated in Illinois. The Illinois Secretary of State has no records on
Defendant. A search of the Indiana Secretary of State website shows that
North Salem State Bank is a for-profit domestic corporation with an address
in Indiana.
2
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III. LEGAL STANDARD
When considering a motion to dismiss under Rule 12(b)(6),
the Court construes the complaint in the light most favorable to
the plaintiff, accepting all well-pleaded allegations as true and
construing all reasonable inferences in the plaintiff’s favor.
Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008).
However, the complaint must set forth facts that plausibly
demonstrate a claim for relief. Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 547 (2007). Plausibility means the plaintiff has alleged
facts that allow the court to reasonably infer that the defendant is
liable for the misconduct alleged. Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009). Merely reciting the elements of a cause of action or
supporting claims with conclusory statements is insufficient to
state a cause of action. Id.
Generally, the running of the statute of limitations is an
affirmative defense. Chi. Bldg. Design, P.C. v. Mongolian House,
Inc., 770 F.3d 610, 613 (7th Cir. 2014). “[C]omplaints do not have
to anticipate affirmative defenses to survive a motion to dismiss.”
United States v. Lewis, 411 F.3d 838, 842 (7th Cir. 2005);
Hollander v. Brown, 457 F.3d 688, 691 n.1 (2006) (“a federal
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complaint does not fail to state a claim simply because it omits
facts that would defeat a statute of limitations defense”).
Dismissal under Rule 12(b)(6) is appropriate, however, when the
complaint contains sufficient facts to establish that the action is
barred by the applicable statute of limitations. Andonissamy v.
Hewlett-Packard Co., 547 F.3d 841, 847 (7th Cir. 2008).
IV. ANALYSIS
The parties agree that Illinois law governs and that the
applicable statute of limitations is 10 years. Def. Mot. ¶¶ 17, 19;
Pl. Resp. at 3; see also Agreement ¶ N (attached to the Compl. as
Group Ex. A (d/e 1-1) (containing a choice of law provision
providing that Illinois law applies); 735 ILCS 5/13-206 (providing
that an action based on a written contract must be commenced
“within 10 years next after the cause of action accrued”); Travelers
Cas. & Sur. Co. v. Bowman, 229 Ill. 2d 461, 477 (2008) (holding
that the 10-year statute of limitations set forth in section 13-206 of
the Code of Civil Procedure applies to a cause of action for breach
of a written indemnity agreement). The parties dispute when
Plaintiff’s cause of action accrued.
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Defendant argues that Plaintiff’s cause of action accrued in
2003 when Defendant allegedly failed to secure a release of
National City Bank’s line-of-credit mortgage. Defendant also
asserts that Plaintiff was on constructive notice of the unreleased
National City Bank mortgage.
Plaintiff agrees that the cause of action would be untimely if
the sole question before the Court was whether Defendant
breached the Agreement by failing to obtain the release. However,
Plaintiff asserts that it does not seek redress for Defendant’s failure
to obtain the release. Instead, Plaintiff seeks to hold Defendant
liable under its contractual agreement to indemnify. The alleged
breach of that contractual duty occurred when Plaintiff suffered an
actual loss. That is, the purported breach occurred when Plaintiff
had to repurchase the loan from Fannie Mae, foreclosed and
completed the sale, and suffered a total loss of $114,842.53.
Plaintiff asserts this loss did not occur until after April 20, 2012
(the date Plaintiff complied with Fannie Mae’s demand and
repurchased the Wainman Loan), well within the 10-year statute of
limitations.
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A cause of action for breach of contract generally accrues at
the time of the breach, not when the party suffers damages. Ind.
Ins. Co. v. Machon & Machon, Inc., 324 Ill. App. 3d 300, 303
(2001). The fact that damages are not immediately ascertainable
does not delay the accrual of the claim. Id. at 304.
However, when a party has a duty to indemnify pursuant to a
written agreement, the cause of action on the agreement accrues
when the party “either has had a judgment entered against him for
damages, or has made payments or suffered an actual loss.” Gerill
Corp. v. Jack L. Hargrove Builders, Inc., 128 Ill. 2d 179, 199
(1989); see also Travelers, 229 Ill. 2d at 477 (finding the indemnity
claim accrued when the defendants failed or refused to pay upon
the plaintiff’s demand for payment; the written agreement provided
that payments due under the indemnity agreement were payable
upon demand, and the defendants breached that agreement by
refusing to pay on demand);3 First Am. Title Ins. Co. v. Resource
Real Estate Servs., LLC, No. 11 C 8095, 2012 WL 3245971, at *4
See also Peregrine Fin. Group, Inc. v. TradeMaven, L.L.C., 391 Ill. App. 3d
309, 317-18) (2009) (distinguishing Travelers on the ground that the
indemnity agreement in Travelers, by its express terms, provided that the
cause of action did not accrue until the defendants failed or refused to pay).
3
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(N.D. Ill. Aug. 7, 2012) (applying Illinois law and finding “the cause
of action was required to be commenced within two years of [the
defendant’s] refusal to fulfill its obligations under the indemnity
provision”); Singer v. Bulk Petroleum Corp., 9 F. Supp. 2d 916,
924 (N.D. Ill. 1998) (finding the defendant breached the covenant
to indemnify and the cause of action accrued when defendant
refused to pay the clean-up costs incurred by the plaintiff).
In this case, Plaintiff alleges that Defendant’s failure to obtain
and record the release of the National City Bank mortgage
constituted a breach of Defendant’s warranties and obligations to
Plaintiff under the Agreement. Compl. ¶ 21. Plaintiff seeks relief,
however, for Defendant’s failure to indemnify Plaintiff for the loss
Plaintiff suffered as a result of that breach.
In the Agreement, Defendant agreed to indemnify Plaintiff
against “any and all losses, claims, demands, actions, suits,
damages, costs, and expenses . . . of every nature and character
that may arise or be made against or incurred by [Plaintiff[ as a
result of [Defendant’s] failure to perform its obligations, breach any
warranties, or misrepresent any certifications in connection with
this agreement.” Compl. ¶ 8 (quoting Agreement ¶ F). On April 20,
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2012, Plaintiff was required to repurchase the Wainman Loan
because the loan was not originated in accordance with the
procedures required by Fannie Mae. Compl. ¶ 17. Thereafter,
Plaintiff demanded Defendant indemnify Plaintiff for the losses
suffered, but Defendant allegedly refused.
The repurchase of the Wainman loan triggered Defendant’s
obligation to perform under the indemnity provision of the
Agreement. Defendant allegedly refused to perform its obligation
to indemnify under the Agreement. Therefore, the alleged breach
of the indemnity provision of the Agreement occurred no earlier
than April 20, 2012, when Plaintiff was required to repurchase the
Wainman Loan. That is well within the 10-year statute of
limitations.
Defendant argued at the hearing that the cases cited by
Plaintiff are distinguishable because the contracts in those cases
were purely indemnity contracts. Although Travelers involved a
pure indemnity contract, several cases have applied the date of
accrual that applies to indemnity contracts to contracts that
merely contained an indemnity provision. See Gerill, 128 Ill. 2d at
185 (involving a contract to purchase an interest in a joint venture
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that contained an indemnity provision); Singer, 9 F. Supp. 2d at
924 (involving a lease with an indemnity agreement; the court
found that the cause of action for contractual indemnity accrued
when the defendant failed to pay the clean-up costs). Therefore,
the Court disagrees with Defendant’s contention that the cases
pertaining to the accrual of breach of indemnity provisions are
distinguishable on this basis.
Because Plaintiff has alleged that Defendant breached its
contractual duty to indemnify Plaintiff no earlier than April 2012,
the Complaint is not barred by the 10-year statute of limitations.
In light of this resolution, it is not necessary to consider whether
Plaintiff was on constructive notice that the National City Bank
mortgage had not been released. The breach for which relief is
sought is not Defendant’s failure to obtain the release but instead
Defendant’s failure to indemnify Plaintiff once Plaintiff had to
repurchase the Wainman Loan.
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IV. CONCLUSION
For the reasons stated, Defendant’s Motion to Dismiss
[10] is DENIED. Defendant shall file an Answer on or before
June 8, 2015.
ENTER: May 21, 2015
FOR THE COURT:
s/Sue E. Myerscough
SUE E. MYERSCOUGH
UNITED STATES DISTRICT JUDGE
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