Community Banc Mortgage Corporation v. North Salem State Bank
Filing
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OPINION: Plaintiff's Motion to Strike Affirmative Defenses (d/e 17 ) is GRANTED IN PART and DENIED IN PART. The Court strikes Affirmative Defenses Nos. 1, 2, and 8 without prejudice. The Court does not strike Affirmative Defenses Nos. 4 and 5. SEE Written Opinion. Entered by Judge Sue E. Myerscough on 7/23/2015. (ME, ilcd)
E-FILED
Thursday, 23 July, 2015 03:26:03 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 Plaintiff Community Banc
Mortgage Corporation’s Motion to Strike Affirmative Defenses (d/e
17). For the reasons that follow, the Motion is granted in part and
denied in part. The Court strikes Affirmative Defenses Nos. 1, 2
and 8 without prejudice and refuses to strike Affirmative Defenses
Nos. 4 and 5.
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, and the case was removed to this Court.
Jurisdiction is based on the diversity of the parties and an amount
in controversy in excess of $75,000. 28 U.S.C. § 1332(a)(1).
The Complaint alleges Plaintiff and Defendant were parties to
a Secondary Mortgage Market Agreement (Agreement), which is
governed by Illinois law. Compl. ¶ 5; Agreement ¶ N. After
entering the Agreement, Defendant originated residential mortgage
loans and sold the loans to Plaintiff. Id. ¶ 6.
As part of the Agreement, Defendant warranted that the
mortgage loans would be processed in compliance with applicable
law and processed, packaged, and closed in accordance with
Secondary Market Guidelines. Id. at ¶ 7 (quoting Agreement ¶ E
(d/e 1-1)). The Agreement also contained an indemnification
agreement, providing that Defendant would hold Plaintiff harmless
from and against all “losses, claims, demands, actions, suits,
damages, costs[,] and expenses” made against or incurred by
Plaintiff as a result of Defendant’s failure to perform its obligations
Page 2 of 18
or Defendant’s breach of any warranties. Id. at ¶ 8 (quoting
Agreement ¶ F).
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 (the Wainman Loan). Id. ¶ 9. After
Plaintiff purchased the Wainman Loan, Plaintiff transferred the
loan to the Federal National Mortgage Association (Fannie Mae)
while retaining the rights and obligations relating to the servicing
of the Wainman Loan. Id. ¶ 14.
In 2010, after the Wainman’s defaulted on the loan, Plaintiff
commenced foreclosure procedures in state court. Compl. ¶15.
During the foreclosure proceedings, it was discovered that a prior
lien, a mortgage held by National City Bank, had not been
released. Id. ¶ 16.
In March 2012, Fannie Mae demanded that Plaintiff
repurchase the Wainman Loan because the loan was not
originated in accordance with the procedures required by Fannie
Mae due to the failure to obtain and record a release of the
National City Bank mortgage. Id. ¶ 17. On or about April 20,
2012, Plaintiff repurchased the Wainman Loan. Id. ¶18. The
Page 3 of 18
foreclosure was ultimately completed, and Plaintiff suffered a loss
of $114,842.53 on the transaction. Id. ¶19.
Plaintiff alleges that Defendant was 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. Compl. ¶ 20. According to Plaintiff, Defendant’s
failure to obtain and record a release of the National City Bank
mortgage and Defendant’s sale of the Wainman loan to Plaintiff
constituted a breach of Defendant’s warranties and obligations
under the Agreement. Id. ¶ 21. Plaintiff demanded that Defendant
indemnify it for the loss suffered on account of Defendant’s breach
of its warranties and obligations, but Defendant refused. Id. ¶¶
22, 23. Plaintiff alleges it has been damaged by Defendant’s
refusal to indemnify Plaintiff for the loss suffered on account of
Defendant’s breach of its warranties and obligations in the amount
of $114,842.53 plus prejudgment interest, reasonable attorney’s
fees, and costs of suit. Id. ¶ 23, Prayer for Relief.
On March 12, 2015, Defendant filed a Motion to Dismiss
asserting that the Complaint was barred by the statute of
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limitations because the cause of action accrued in 2003 when
Defendant allegedly failed to secure a release of the National City
Bank mortgage. On May 21, 2015, following a hearing, the Court
denied the Motion to Dismiss. Opinion (d/e 14). The Court found
that, under Illinois law, “[t]he repurchase of the Wainman loan
triggered Defendant’s obligation to perform under the indemnity
provision of the Agreement,” and, therefore, the alleged breach
occurred no earlier than April 20, 2012. See Opinion at 13.
On June 8, 2015, Defendant filed an Answer and Affirmative
Defenses. On June 18, 2015, Plaintiff filed the Motion to Strike
Affirmative Defenses at issue herein.
II. LEGAL STANDARD
Pursuant to Rule 12(f) of the Rules of Civil Procedure, the
Court may strike from a pleading “an insufficient defense or any
redundant, immaterial, impertinent, or scandalous matter.” Fed.
R. Civ. P. 12(f). Motions to strike are generally disfavored because
such motions often only delay the proceedings. See Heller Fin.,
Inc. v. Midwhey Powder Co., Inc., 883 F.2d 1286, 1294 (7th Cir.
1989). However, if a motion to strike removes unnecessary clutter
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from the case, then the motion serves to expedite, not delay, the
proceedings. Id.
Generally, a court will strike an affirmative defense only if the
defense is insufficient on its face. Heller, 883 F.2d at 1294. A
court will not ordinarily strike an affirmative defense if the defense
is sufficient as a matter of law or presents questions of law or fact.
Id. Because affirmative defenses are pleadings, affirmative
defenses are subject to the pleading requirements of the Federal
Rules of Civil Procedure and must set forth a “short and plain
statement” of the defense. Id., citing Fed. R. Civ. P. 8(a).
Although the Seventh Circuit has not addressed whether the
heightened pleading standard set forth in Bell Atl. Corp. v.
Twombly, 530 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662
(2009) applies to affirmative defenses, several courts in this Circuit
have found that the heightened pleading standard does apply to
affirmative defenses. See Sarkis’ Cafe, Inc. v. Sarks in the Park,
LLC, 55 F. Supp. 3d 1034, 1040 (N.D. Ill. 2014) (citing cases).
These courts examine whether the defendant states an “affirmative
defense to relief that is plausible on its face.” SEC v. Sachdeva,
No. 10-C-747, 2011 WL 933967, at *1 (E.D. Wisc. Mar. 16, 2011).
Page 6 of 18
However, whether the heightened pleading standard applies likely
makes little difference. Factual allegations that were sufficient
before Twombly and Iqbal will likely still be sufficient, and “bare
bones” affirmative defenses have always been insufficient. See
Shield Techs. Corp. v. Paradigm Positioning, LLC, No. 11 C 6183,
2012 WL 4120440, at *8 (N.D. Ill. Sept. 19, 2012). In any event, if
an affirmative defense is defective, leave to amend should be freely
granted as justice requires under Federal Rule of Civil Procedure
15(a). See Heller, 883 F.2d at 1294.
III. ANALYSIS
Plaintiff moves to strike Affirmative Defenses Nos. 1, 2, 4, 5,
and 8.
A.
Plaintiff’s motion to strike Affirmative Defense No. 1 is
granted.
Plaintiff moves to strike Affirmative Defense No. 1, which
provides as follows:
The Complaint is barred by the doctrine of res judicata
based on the 2010 foreclosure action referenced in the
Complaint because any and all claims against
[Defendant] relating to the Agreement should have been
asserted at that time.
Page 7 of 18
Plaintiff argues that Defendant has not alleged facts establishing
the necessary elements of the defense of res judicata. Under
Illinois law,1 Defendant would have to show: “(1) a final judgment
on the merits rendered by a court of competent jurisdiction; (2)
identity of causes of action, and (3) identity of the parties or their
privies.” See Pl. Mem. at 3 (quoting Hayashi v. Ill. Dep’t of Fin. &
Prof’l Regulation, 25 N.E.3d 570, 585 (Ill. 2014)). Plaintiff argues
that there is no identity of causes of action or identity of parties
between this case and the state court foreclosure action. In
support of Plaintiff’s claim that Defendant has not alleged facts
showing it was a party to the foreclosure action, Plaintiff notes that
Defendant claims, in its Answer, a lack of knowledge about the
Defendant notes that Indiana law may apply to the res judicata defense
because the 2010 foreclosure action took place in Indiana. Garry v. Geils, 82
F.3d 1362, 1367 n. 8 (7th Cir. 1996), quoting Pirela v. Village of N. Aurora,
935 F.2d 909, 911 (7th Cir. 1991) (noting that “under res judicata we look to
the law of the state in which the prior judgment was entered to determine
whether that state ‘would give that judgment preclusive effect against the
claims asserted in the federal action’”). Under Indiana law, a res judicata
claim is primarily the same as in Illinois, requiring the following elements: “1)
the former judgment must have been rendered by a court of competent
jurisdiction; 2) the former judgment must have been rendered on the merits;
3) the matter now in issue was, or could have been, determined in the prior
action; and 4) the controversy adjudicated in the former action must have
been between the parties to the present suit or their privies.” Warren v.
Warren, 952 N.E.2d 269, 273 (Ind. App. Ct. 2011).
1
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allegations pertaining to the 2010 foreclosure proceedings. See
Answer ¶¶ 15, 16, 19.
Defendant responds that Plaintiff’s argument is premised on
a misstatement of the pleading requirements under the Federal
Rules of Civil Procedure. Defendant asserts it need only state “a
plausible and short statement of the grounds for the defense.” Def.
Mem. at 2-3. Defendant argues the defense is sufficient because
Defendant has set forth the grounds on which the defense is
based.
While an affirmative defense need only set forth a short, plain
statement of the defense, the allegations “must include either
direct or inferential allegations respecting all material elements of
the claim asserted.” Renalds v. S.R.G. Rest. Grp., 119 F. Supp. 2d
800, 802 (N.D. Ill. 2000). Here, Defendant’s affirmative defense
does not allege the identity of the parties or their privies in the
state court foreclosure action. Because Defendant does not allege
directly or by inference all of the material elements of the res
judicata defense, Plaintiff’s motion to strike Affirmative Defense No.
1 is granted.
Page 9 of 18
B.
Plaintiff’s motion to strike Affirmative Defense No. 2 is
granted.
Plaintiff moves to strike Affirmative Defense No. 2, which
alleges:
The Complaint is untimely under 735 ILCS 5/13-206,
which establishes a ten-year statute of limitations for
breach of contract actions under Illinois law.
Plaintiff argues that because the Court has already determined the
issue of the statute of limitations when the Court denied
Defendant’s Motion to Dismiss on that ground, the ruling is now
the law of the case. Plaintiff also asserts that, because Defendant
already raised the defense in a motion to dismiss, Defendant does
not need to reiterate the defense in its Answer to preserve the
issue. Pl. Mem. at 4 (citing Ohmer Corp. v. Duncan Meter Corp., 8
F.R.D. 582, 583 (N.D. Ill. 1948) (striking affirmative defense where
the court had already ruled on the issue in a preliminary motion
and finding that the defendant did not need to include the defense
in its answer because the record of the case would “preserve
defendant’s rights”)).
Page 10 of 18
Defendant responds that the Federal Rules of Civil Procedure
do not preclude a party from raising an affirmative defense that
was the subject of an earlier motion to dismiss.
The Court finds that the affirmative defense is redundant.
Defendant already raised the defense in a motion to dismiss and
has preserved the issue. The Court denied the motion to dismiss
on legal, not factual, grounds. Therefore, a compelling reason does
not likely exist to revisit the earlier ruling. See, e.g., Minch v. City
of Chicago, 486 F.3d 294, 301 (7th Cir. 2007) (under the law of the
case doctrine, a court should not revisit an earlier ruling absent a
compelling reason or a change in the law). Plaintiff’s motion to
strike Affirmative Defense No. 2 is granted.
C.
Plaintiff’s motion to strike Affirmative Defense No. 4 is
denied.
Plaintiff moves to strike Affirmative Defense No. 4, which is
premised on the Rooker-Feldman doctrine:
There is no subject-matter jurisdiction as to the matters
raised in the Complaint because:
a) The Complaint is inextricably intertwined with the
judgment in the 2010 state court foreclosure action; and
b) [Plaintiff] is calling on this Court to review the state
court action and judgment as it relates to the relative
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priorities of the National City Bank mortgage and the
mortgage of [Plaintiff] purchased from [Defendant].
Plaintiff argues that the Rooker-Feldman doctrine does not apply
because Plaintiff is not seeking to have this Court review the
decision in the state court foreclosure case.
Defendant responds that the issues in this case are
inextricably intertwined with the state court decision. According to
Defendant, Plaintiff is asking this Court to revisit the judgment in
the foreclosure proceedings “as it relates to the relative priorities of
the National City Bank mortgage and the mortgage that [Plaintiff]
purchased from [Defendant].” Def. Mem. at 6. Defendant further
asserts that Plaintiff is asking this Court to remedy the loss caused
by the state court foreclosure proceedings.
“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.” Manley v. City of
Chicago, 236 F.3d 392, 396 (7th Cir. 2001), citing Rooker v.
Fidelity Trust Co., 263 U.S. 413 (1923); District of Columbia Court
of Appeals v. Feldman, 460 U.S. 462 (1983). That is, the doctrine
bars the federal claim when “the state court’s judgment is the
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source of the injury of which the plaintiffs complain in federal
court.” Richardson v. Koch Law Firm, P.C., 768 F.3d 732, 733
(7th Cir. 2014).
Defendant’s affirmative defense alleges that Plaintiff’s federal
claim asks this Court to review the state court action as it relates
to the relative priorities of the National City Bank mortgage and the
mortgage Plaintiff purchased from Defendant. As such, and
without suggesting that Defendant’s characterization of Plaintiff’s
claim is correct, the Court finds that Defendant has sufficiently
pleaded a Rooker-Feldman defense. In addition, the issues raised
by the parties in the Motion to Strike and the Defendant’s response
raise questions of law and fact, and a court does not ordinarily
strike an affirmative defense if the defense presents questions of
law or fact. See Heller, 883 F.2d at 1294 (“Ordinarily, defenses will
not be struck if they are sufficient as a matter of law or if they
present questions of law or fact”). Therefore, Plaintiff’s motion to
strike Affirmative Defense No. 4 is denied.
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D.
Plaintiff’s motion to strike Affirmative Defense No. 5 is
denied.
Plaintiff moves to strike Affirmative Defense No. 5, which
provides as follows:
The Complaint is barred by the doctrine of laches
because:
a) [Plaintiff] failed to notify [Defendant] promptly in 2010
once [Plaintiff] became aware that National City Bank
was asserting priority over the mortgage purchased by
[Plaintiff];
b) Instead, [Plaintiff] failed to notify [Defendant] of
National City Bank’s claim until after [Plaintiff]
repurchased the mortgage from Fannie Mae in 2012;
c) [Plaintiff’s] delay in asserting its rights, if any, relating
to the relative priorities of the above mortgages has
caused prejudice to [Defendant].
Plaintiff argues that the doctrine of laches is an equitable doctrine
that does not apply in a case where the sole remedy sought is
money damages.
Defendant responds that laches is a valid affirmative defense
under Illinois law in actions for damages.
Illinois courts have expanded the application of a laches
defense to lawsuits seeking both equitable and legal remedies. Mo
v. Hergan, 982 N.E.2d 905, 914 (Ill. App. Ct. 2012) (citing cases).
Page 14 of 18
Illinois courts appear to disagree, however, on whether a laches
defense should be available in an action that seeks only money
damages. Id. (noting the disagreement and assuming a laches
defense could be raised in an action only seeking monetary relief).
The Seventh Circuit has also noted that Illinois “has begun to
erode the distinction between legal and equitable defenses. See
West End Mut. Ins. Co. v. Procaccio Painting & Drywall Co., Inc., -- F.3d ---, 2015 WL 4153635, at *10 (7th Cir. 2015). In a case
addressing laches in the context of a motion to dismiss and a
summary judgment motion, the Seventh Circuit Court noted it had
“yet to find a case in which an Illinois court has applied laches to
bar a breach-of-contract suit seeking only monetary damages.”
West End, 2015 WL 4153635, at *10, citing Nature Conservancy v.
Wilder Corp. of Del., 656 F.3d 646, 651 (7th Cir. 2011) (examining
Illinois law and finding no need to resolve the issue where, even
assuming laches could apply, the defense failed for lack of evidence
of prejudice). Given the uncertainty under Illinois law, Plaintiff’s
motion to strike Affirmative Defense No. 5 is denied. See Heller,
883 F.2d at 1294 (“Ordinarily, defenses will not be struck if they
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are sufficient as a matter of law or if they present questions of law
or fact”).
E.
Plaintiff’s motion to strike Affirmative Defense No. 8 is
granted.
Plaintiff last argues that the Court should strike Affirmative
Defense No. 8. Affirmative Defense No. 8 alleges as follows:
[Plaintiff’s] Complaint fails to state a claim upon which
relief can be granted because the facts alleged in the
Complaint fail to trigger [Defendant’s] alleged duty to
indemnify [Plaintiff] under Section F of the Agreement.
Plaintiff notes that while some courts allow a defendant to raise
“failure to state a claim” as an affirmative defense, the defendant
must allege more than a “bare bones” recitation of the defense and
do more than reiterate the denials contained in the answer.
Defendant agrees that there is disagreement over whether
failure to state claim is an affirmative defense. Defendant asserts,
however, that courts in this district have permitted the defense.
Defendant further assets that its defense is more than a bare
bones recitation of the defense because the defense indicates that
the alleged duty to indemnify was never triggered.
Courts are divided over whether a party may properly plead a
failure to state a claim as an affirmative defense. See Jackson v.
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Methodist Med. Ctr. of Ill., No. 06-1235, 2007 WL 128001, at *2
(C.D. Ill. Jan. 11, 2007) (collecting cases). However, even those
courts that allow the defense to be raised require more than a
“bare recitation of the legal standard.” Id.
Although Affirmative Defense No. 8 sets forth more than a
bare bones recitation of the defense, the additional facts provide
nothing more than a repeat of Defendant’s denial of the allegations
of the Complaint. See Answer ¶¶ 20, 21, 22. “[A]n affirmative
defense cannot merely repeat a defendant’s denial of allegations
contained in the complaint.” Sarkis’ Cafe, 55 F. Supp. 3d at 1041.
Therefore, Plaintiff’s motion to strike Affirmative Defense No. 8 is
granted.
IV. CONCLUSION
For the reasons stated, Plaintiff’s Motion to Strike Affirmative
Defenses (d/e 17) is GRANTED IN PART and DENIED IN PART.
The Court strikes Affirmative Defenses Nos. 1, 2, and 8 without
prejudice. The Court does not strike Affirmative Defenses Nos. 4
and 5.
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ENTER: July 23, 2015
FOR THE COURT:
s/Sue E. Myerscough
SUE E. MYERSCOUGH
UNITED STATES DISTRICT JUDGE
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