Community Banc Mortgage Corporation v. North Salem State Bank

Filing 51

OPINION: Defendant's Motion to Dismiss for Lack of Subject Matter Jurisdiction 39 filed by North Salem State Bank is DENIED. SEE WRITTEN OPINION. Entered by Judge Sue E. Myerscough on 05/30/2017. (SKN, ilcd)

E-FILED

Wednesday, 31 May, 2017 08:06:33 AM
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 Defendant North Salem
State Bank’s Motion to Dismiss for Lack of Subject Matter
Jurisdiction (d/e 39). Defendant argues that Plaintiff Community
Banc Mortgage Corporation lacks standing to bring this cause of
action. The Motion to Dismiss is DENIED.
I. BACKGROUND
In January 2015, Plaintiff filed suit against Defendant in
state court. On February 19, 2015, Defendant removed the action

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to this Court. See Notice of Removal (d/e 1) (alleging diversity
jurisdiction).
The Complaint alleges that Plaintiff and Defendant were
parties to a Secondary Mortgage Market Agreement dated May 21,
1992, as amended by Amendment to Secondary Mortgage Market
Agreement 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.
Under the Agreement, Defendant made a number of
warranties to Plaintiff, including that the loans would be processed
and originated in compliance with applicable laws and Secondary
Market guidelines. Compl. ¶ 7. Defendant also agreed to
indemnify Plaintiff against all claims and losses made against or
incurred by Plaintiff as a result of Defendant’s failure to perform its
obligations, breach of any warranties, or misrepresentation of any
certifications under the Agreement. Id. ¶ 8.
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One of the loans originated by Defendant was a mortgage
loan dated September 4, 2003, made to Steven and Susan
Wainman (the Wainman Loan) secured by a first mortgage on
property owned by the Wainmans (the Property). Compl. ¶ 9. After
the closing of the Wainman Loan, the loan was purchased by
Plaintiff and then transferred to Fannie Mae. Compl. ¶ 14.
Plaintiff retained the rights and obligations related to servicing the
Wainman Loan. Id.
The Complaint alleges that, in 2010, Plaintiff commenced
foreclosure proceedings after the Wainmans defaulted on the loan.
Compl. ¶ 15. During the foreclosure proceedings, it was
discovered that a pre-existing Line of Credit mortgage on the
Property in favor of National City Bank had not been released. 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
mortgaged 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.
Defendant filed a Motion to Dismiss (d/e 10) asserting the
cause of action was untimely. The Court denied the Motion,
finding the Complaint was not barred by the statute of limitations.
Opinion at 14 (d/e 14) (finding that the breach for which relief is
sought is not Defendant’s failure to obtain the release but
Defendant’s failure to indemnify Plaintiff once Plaintiff repurchased
the Wainman Loan).

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In February 2017, the parties filed cross-motions for
summary judgment (d/e 40, 42), which remain pending.
Defendant also filed the Motion to Dismiss for Lack of Jurisdiction
(d/e 39) at issue herein.
In the Motion to Dismiss, Defendant asserts that facts
learned during the course of the litigation demonstrate that
Plaintiff does not have standing to sue. Therefore, according to
Defendant, this Court does not have subject matter jurisdiction
and the case must be dismissed.
II. LEGAL STANDARD
Pursuant to Federal Rule of Civil Procedure 12(b)(1), a
defendant may move for dismissal of a claim for lack of subject
matter jurisdiction. Fed. R. Civ. P. 12(b)(1). A federal court’s
jurisdiction is limited to “Cases” and “Controversies,” and no case
or controversy exists if the plaintiff lacks standing. U.S. Const.
art. III, § 2; Johnson v. U.S. Office of Pers. Mgmt., 783 F.3d 655,
660 (7th Cir. 2015).
When considering a Rule 12(b)(1) motion, this Court accepts
as true all well-pleaded factual allegations and draws all
reasonable inferences in favor of the plaintiff. Alicea-Hernandez v.
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Catholic Bishop of Chi., 320 F.3d 698, 701 (7th Cir. 2003). If a
defendant challenges standing as a factual matter, however, the
Court may look beyond the allegations in the complaint and view
whatever evidence has been submitted to determine whether
subject matter jurisdiction exists. Apex Digital, Inc. v. Sears,
Roebuck & Co., 572 F.3d 440, 444 (7th Cir. 2009). The plaintiff
bears the burden of establishing standing by a preponderance of
the evidence. See Reid v. Ill. State Bd. of Educ., 358 F.3d 511, 515
(7th Cir. 2004); Lee v. City of Chi., 330 F.3d 456, 468 (7th Cir.
203) (“If standing is challenged as a factual matter, the plaintiff
must come forward with ‘competent proof’—that is a showing by a
preponderance of the evidence—that standing exists.”). A plaintiff
establishes standing by showing (1) that he suffered an injury that
is (a) concrete and particularized and (b) actual or imminent; (2)
the injury is fairly traceable to the challenged action of the
defendant; and (3) that it is likely that a favorable decision will
redress the injury. Berger v. Nat’l Collegiate Athletic Ass’n, 843
F.3d 285, 289 (7th Cir. 2016).

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III. ANALYSIS
Defendant argues that the available evidence shows that
Plaintiff does not have standing to bring this suit. Defendant
asserts that, contrary to the allegations in the Complaint, United
Community Bank is the real party in interest because Plaintiff
transferred all of its rights in the Property to United Community
Bank and United Community Bank conducted the foreclosure,
purchased the Property at foreclosure sale, and “bought the
Property back from Fannie Mae.” Mot. at 4.
Defendant points to evidence that Plaintiff transferred the
note for the Wainman Loan to United Community Bank so that
United Community Bank could foreclose on the Mortgage. See
2010 Complaint for Foreclosure of Mortgage (Def. Ex. 1)
(containing the allegation that Plaintiff transferred the note for the
Wainman Loan to United Community Bank so that United
Community Bank could foreclose on the mortgage). Plaintiff also
assigned all of its rights in the mortgage to United Community
Bank. See Assignment of Mortgage dated March 29, 2010 (Def. Ex.
2). United Community Bank prosecuted the foreclosure complaint
against the Wainmans, obtained a judgment in its name, and
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bought the Property at the sheriff’s sale. See Am. In Rem Default
J. of Foreclosure and Agreed Entry (Def. Ex. 6); Sheriff’s Deed (Def.
Ex. 7). Plaintiff does not dispute these facts.1
Defendant also asserts, and Plaintiff disputes, that United
Community Bank—not Plaintiff—repurchased the Wainman Loan
from Fannie Mae. See Def. Ex. 4 (a December 2012 email from
Craig Fricke, United Community Bank Vice President Loss
Mitigation to Jennifer Gast, Associate Claims Counsel for Fidelity
National Title Group, stating that “United Community Bank was
required to repurchase this loan due to the handling of the title
claim”). Defendant asserts that this evidence demonstrates that
United Community Bank, and not Plaintiff, is the real party in
interest. Defendant’s motion does not mention the three elements
of standing but appears to argue that Plaintiff did not suffer an
injury in fact because Plaintiff assigned its rights to the mortgage
and note to United Community Bank and United Community Bank
repurchased the Loan from Fannie Mae.

Defendant incorporated the facts from its Motion for Summary Judgment
into the Motion to Dismiss, and Plaintiff incorporated its response to those
facts and its own undisputed facts. See Def. Undisputed Facts Nos. 19, 21,
32, 33 (d/e 40-1); Pl. Resp. (d/e 45).
1

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Plaintiff argues that it has standing to bring the suit against
Defendant for indemnification under the Agreement because
Defendant caused Plaintiff’s injury and the injury can be
redressed. Pl. Resp. at 4. Plaintiff also argues that it suffered an
actual, concrete injury because Fannie Mae required that Plaintiff
repurchase the Wainman Loan and Plaintiff did so.
As proof that Plaintiff repurchased the Wainman Loan from
Fannie Mae, Plaintiff points to the Affidavit of Mary T. Sexton,
Senior Vice President of Community Banc Mortgage Corporation.
See Memo in Support of Mot. for Summ. J., Sexton Aff. (d/e 43-2).
Sexton asserts that Plaintiff Community Banc Mortgage
Corporation is a wholly owned subsidiary of United Community
Bank. Sexton Aff. ¶ 2. Sexton states that, in April 2012, Plaintiff
complied with Fannie Mae’s demand and repurchased the
Wainman Loan at a cost of $110,002.02. Id. ¶ 12. Sexton refers to
the pertinent page of Plaintiff’s Demand Deposit (checking)
Account showing a posting of a $110,002.02 deposit on April 20,
2012 for the repurchase of the Wainman Loan and a debit by
Fannie Mae of $294,003.85, which included the Wainman Loan
repurchase. Id. ¶ 13, citing Exhibit B-4 (d/e 43-2, p. 15 of 22).
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Sexton also asserts that, after the mortgaged property was sold,
the net proceeds of $14,712.37 were remitted to Plaintiff, leaving
Plaintiff with a net loss of $95,289.65 exclusive of costs, from the
repurchase from Fannie Mae. Aff. ¶ 15.
The Court finds that Plaintiff has established standing.
Plaintiff suffered an injury in fact when Plaintiff repurchased the
Wainman Loan from Fannie Mae, as evidenced by the Sexton
Affidavit and the bank statement. In addition, Plaintiff is enforcing
its own indemnification rights against Defendant under the
Agreement. Defendant has presented no evidence that Plaintiff has
assigned its rights under the Agreement to a third party. The fact
that Plaintiff assigned its interest in the Wainman Loan to United
Community Bank does not affect Plaintiff’s ability to seek redress
against Defendant under the Agreement. See, e.g., Residential
Funding Co., LLC v. Acad. Mortg. Corp., 55 F. Supp. 3d 935, 94445 (D. Minn. 2014) (finding the complaint alleged standing and
that the plaintiff was asserting its own interests under the parties’
mortgage purchase agreement even though the plaintiff sold the
loans, where there were no allegations that the plaintiff sold its

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rights to bring claims for breach of the mortgage purchase
agreement).
The case cited by Defendant, Apex Digital, Inc. v. Sears,
Roebuck & Co., is distinguishable. In Apex, the plaintiff sued the
defendant for breach of contract for failing to pay for products the
defendant purchased from the plaintiff over several years. Apex,
572 F.3d at 442. The defendant moved to dismiss for lack of
standing, producing evidence that the plaintiff sold and assigned
all of its rights in its accounts receivable to a third party. Id. The
Seventh Circuit held that the plaintiff failed to produce any
evidence to rebut the defendant’s allegation that the plaintiff
assigned all of its right in the debt and, therefore, failed to
demonstrate standing. Id. at 444-45.
In this case, Plaintiff assigned all of its interest in the
mortgage and note that comprised the Wainman Loan, but Plaintiff
is not attempting to collect on or enforce that loan. Instead,
Plaintiff is seeking to enforce the indemnification provision of the
Agreement between Plaintiff and Defendant. And, as noted above,
Defendant points to no evidence that Plaintiff assigned its rights to

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enforce the Agreement. Therefore, the reasoning in Apex does not
apply.
IV. CONCLUSION
For the reasons stated, Defendant’s Motion to Dismiss for
Lack of Subject Matter Jurisdiction (d/e 39) is DENIED.
ENTER: May 30, 2017
FOR THE COURT:
s/Sue E. Myerscough
SUE E. MYERSCOUGH
UNITED STATES DISTRICT JUDGE

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