RBS Citizens, N.A. d/b/a Charter One v. Sanyou Import, Inc. et al

Filing 18

MEMORANDUM OPINION signed by the Honorable Charles P. Kocoras on 7/13/2011.Mailed notice(sct, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
RBS CITIZENS, N.A., d/b/a
CHARTER ONE BANK,
Plaintiff,
vs.
SANYOU IMPORT, INC., and
JIAN QIANG YANG,
Defendants.

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11 C 1820

MEMORANDUM OPINION
CHARLES P. KOCORAS, District Judge:
This case comes before the Court on the motion of Plaintiff RBS Citizens, N.A.
d/b/a Charter One Bank (“Charter One”) to dismiss the counterclaims and strike the
affirmative defenses of Defendants Sanyou Import, Inc. (“Sanyou Import”) and Jian
Qiang Yang (“Yang”) (collectively, “Defendants”), pursuant to Federal Rules of Civil
Procedure 12(b)(6) and 12(f). For the reasons stated below, the Court grants Charter
One’s motion to dismiss Defendants’ counterclaims and grants in part and denies in part
Charter One’s motion to strike Defendants’ affirmative defenses.
BACKGROUND 1
Two individuals, Gang Bai (“Bai”) and Li Ma (“Ma”), own and operate Sanyou
Import, a corporation which needed a loan for real estate ventures. For the loan, Bai
1

For purposes of the motion to dismiss, we accept the allegations in the Defendants’ answer
as true. Warth v. Seldin, 422 U.S. 490, 501 (1975).

and Ma contacted Charter One. Although the relationship between Bai, Ma, and Yang
is unclear, Yang alleges that Bai and Ma along with Stephanie Li Cheung (“Li
Cheung”), a Charter One employee, and Li Cheung’s supervisor personally visited
Yang on two occasions, so that Yang could obtain a line of credit for Sanyou Import
and personally guarantee the loan.
On March 30, 2005, Yang signed several documents as the “President” of Sanyou
Import, including a Loan Agreement and a Demand Line of Credit Note (the “Note”).
Yang also signed, as an individual, an Unlimited Guaranty. At the time Yang signed
the documents, he was, in fact, not the President of Sanyou Import. Charter One
allegedly knew that Yang was not the President of Sanyou Import and that Yang had
no control over either Sanyou Import or the proceeds from the Note. Further, Charter
One knew that Yang was not fluent in English and did not translate the documents into
his native language, Chinese. According to the Loan Agreement, Charter One agreed
to make loans to Sanyou Import in an aggregate amount of up to $100,000. According
to the Note, Charter One loaned Sanyou Import $100,000 and Sanyou Import promised
to re-pay Charter One. The Note is a “demand note” and gives Charter One the absolute
and unconditional right to demand payment, in whole or in part, at any time. The Note
also stated that Sanyou Import would not use the proceeds for personal, family, or
household purposes. According to the Unlimited Guaranty, Yang unconditionally and
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personally guaranteed payment to Charter One of all sums presently due or due in the
future. Notwithstanding the explicit terms of the contracts, Li Cheung allegedly assured
Yang that he would not assume any risks by either signing the loan documents as
Sanyou Import’s President or personally guaranteeing the loan.
Defendants also allege that, on March 30, 2005, Li Cheung witnessed Bai and Ma
execute an agreement with Yang (the “Unidentified Agreement”), which stated that the
$100,000 obtained by Sanyou Import was not meant for corporate use, but for Bai’s and
Ma’s personal use. Pursuant to the Unidentified Agreement, Bai and Ma pledged their
Chicago property as collateral for the line of credit. Even though Charter One knew of
the pledge made by Bai and Ma, it subsequently lent Bai and Ma additional money in
an amount equal to the remaining equity of the Chicago property.
On January 31, 2011, Charter One sent a Notice of Default, Demand for
Payment, and Reservation of Rights to Sanyou Import and Yang, demanding $99,930.06
as payment for all the amounts due under the Note.
On March 16, 2011, Charter One filed suit against Sanyou Import and Yang,
alleging a claim for breach of contract because the Defendants have failed to make the
payments due under the Note. On April 26, 2011, Defendants filed an answer, in which
Defendants asserted several affirmative defenses and Yang asserted several
counterclaims.
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LEGAL STANDARD
A motion to dismiss tests the legal sufficiency of a pleading. In re HealthCare
Compare Corp. Sec. Litig., 75 F.3d 276, 279 (7th Cir. 1996). A court grants a motion
to dismiss a counterclaim when the counter-plaintiff alleges no set of facts entitling him
or her to relief. Id. In ruling on a motion to dismiss, a court accepts the well-pleaded
allegations of the counterclaim as true, construes the allegations in the light most
favorable to the counter-plaintiff, and draws all reasonable inferences in favor of the
counter-plaintiff. See Hentosh v. Herman M. Finch Univ. Of Health Scis./The Chicago
Med. Sch., 167 F.3d 1170, 1173 (7th Cir. 1999). Further, a “court may strike from a
pleading an insufficient defense or any redundant, immaterial, impertinent, or
scandalous matter.” Fed. R. Civ. P. 12(f). The court may strike affirmative defenses
which, on the face of the pleading, are insufficient as a matter of law. Heller Fin., Inc.
v. Midwhey Powder Co., 883 F.2d 1286, 1294 (7th Cir. 1989).
DISCUSSION 2
I.

Motion to Dismiss Defendants’ Counterclaims
Yang asserts three counterclaims.

First, Yang asserts a counterclaim for

fraudulent conveyance, alleging that Charter One induced Yang to sign the loan
documents and accepted collateral (i.e., the remaining equity in the Chicago property)

2

Both parties agree that Illinois law applies to the counterclaims and affirmative defenses.
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already pledged to Yang. While Yang alleges that Charter One’s actions constitute a
fraudulent conveyance under Illinois common law, a fraudulent conveyance claim is
governed by the Uniform Fraudulent Transfer Act (“UFTA”), 740 Ill. Comp. Stat.
160/8(a). To state a claim under the UFTA, “the factual situation must include a debtor
who is liable on a claim to a creditor.” Apollo Real Estate Inv. Fund, IV, L.P. v. Gelber,
935 N.E.2d 963, 970 (Ill. App. Ct. 2010). The creditor seeking to avoid the conveyance
must show that he or she has a right to payment from the debtor. Id. Defendants fail
to allege facts demonstrating that Yang can avoid a conveyance because he is a creditor
and has a right to payment from Charter One. Indeed, Charter One is the creditor in this
case. Accordingly, this Court dismisses Defendants’ fraudulent conveyance
counterclaim.
Second, Yang asserts a counterclaim under the Illinois Consumer Fraud and
Deceptive Business Practices Act (“ICFA”), 815 Ill. Comp. Stat. 505/2. Yang broadly
alleges that Charter One violated the ICFA’s requirements to Yang’s detriment. To
state a claim under the ICFA, Defendants must allege: (1) a deceptive act or practice by
Charter One; (2) intent by Charter One that Defendants rely on the deception; (3) the
occurrence of the deception during a course of conduct involving trade or commerce;
and (4) that Defendants suffered actual damage proximately caused by the deception.
Ramirez v. Smart Corp., 863 N.E.2d 800, 811 (Ill. App. Ct. 2007). As a matter of law,
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Yang cannot state an ICFA claim based on misrepresentations that conflict with the
terms revealed within the very loan documents signed. See, e.g., Bank of Am., N.A. v.
Shelbourne Dev. Group, Inc., 732 F. Supp. 2d 809, 826 (N.D. Ill. 2010) (dismissing
ICFA counterclaim where defendants alleged that plaintiff misrepresented the terms of
the contract). Accordingly, Defendants fail to state a claim under the ICFA.
Finally, Yang asserts a counterclaim for breach of a fiduciary duty. Specifically,
Yang alleges that Charter One breached the fiduciary duties it owed to Yang as a bank
customer. A fiduciary relationship may exist either because of the relationship of the
parties or because the facts reveal that one party placed special trust and confidence in
the other party which resulted in the other party’s superiority and influence.3 Farmer
City State Bank v. Guingrich, 487 N.E.2d 758, 762-64 (Ill. App. Ct. 1985). The
relationship between a bank and its customers is a debtor-creditor relationship and, as
a matter of law, no fiduciary relationship exists. Id. at 763. Moreover, no fiduciary
relationship exists between a guarantor and a creditor. Id. Whether viewed as a debtor
and creditor or guarantor and creditor, no fiduciary relationship exists based on the
relationship between Charter One and Yang. Accordingly, Defendants fail to state a
counterclaim for breach of a fiduciary duty.

3

Defendants allege a fiduciary duty based solely on the relationship between Charter One
and Yang.
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II.

Motion to Strike Defendants’ Affirmative Defenses
Charter One asks this Court to strike all of Defendants’ affirmative defenses. As

a preliminary matter, this Court cannot discern precisely which, or how many,
affirmative defenses Defendants assert since Defendants fail to expressly label each
defense.
Defendants allege that Yang lacked authority to sign the documents and bind
either Sanyou Import or himself. Charter One responds that Yang had express authority
to execute the loan documents. An agent has express authority to legally bind the
principal when the principal explicitly grants the agent the authority to perform a
particular act. Curto v. Illini Manors, Inc., 940 N.E.2d 229, 233 (Ill. App. Ct. 2010).
Although Yang alleges that he lacked authority to sign the loan documents and bind
Sanyou Import, Defendants attached an exhibit to their answer which contradicts
Yang’s allegation. The contradictory exhibit trumps the allegation in the answer. See
Abcarian v. McDonald, 617 F.3d 931, 933 (7th Cir. 2010). According to the attached
exhibit, on March 30, 2005, Bai, Ma and Yang entered into an agreement, originally
written in Chinese, which granted Yang the authority to represent Sanyou Import as its
owner and legal representative and borrow $100,000 for use by Bai and Ma.4 Since

4

Since Defendants attached the agreement as an exhibit to their answer, the agreement is
deemed part of the pleading for all purposes. Fed. R. Civ. P. 10(c) (“A copy of a written instrument
that is an exhibit to a pleading is a part of the pleading for all purposes.”).
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Yang had express authority to execute the loan documents on behalf of Sanyou Import,
Defendants’ affirmative defense, based on Yang’s lack of authority, is insufficient as
a matter of law.
Defendants also allege that the Unlimited Guaranty is unenforceable for a lack
of consideration.

A guaranty, like any other contract, must be supported by

consideration, but the consideration need not confer a personal benefit to the guarantor.
Tower Investors, LLC v. 111 East Chestnut Consultants, Inc., 864 N.E.2d 927, 937 (Ill.
App. Ct. 2007). A promise based on consideration to benefit a third person constitutes
sufficient consideration to bind the guarantor. Id. at 937. Moreover, where the
guaranty is executed at the same time as, or before, the debt is incurred, the
consideration supporting the underlying debt also supports the guaranty. Id. Here,
Defendants’

answer

admits

that

Yang

executed

the

Unlimited

Guaranty

contemporaneously with the Note on March 30, 2005, and thus, no additional
consideration was needed to support Yang’s guaranty. Accordingly, this Court strikes
the affirmative defense.
Defendants further allege that Yang was not competent to execute the loan
documents, or that there was no meeting of the minds, because Yang was not fluent in
English and the documents were not translated into Chinese. Yang’s lack of fluency or
unfamiliarity with the English language is not a defense to the enforcement of the loan
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documents. Paper Express, Ltd. v. Pfankuch Maschinen GmbH, 972 F.2d 753, 757 (7th
Cir. 1992) (finding that a party who is unfamiliar with the contract language and signs
the contract without learning of its contents is bound to the contract); Velcich v. Malesh,
1 N.E.2d 278, 280 (Ill. App. Ct. 1936) (“Illiteracy is not a defense to a contract, and, if
a party to a contract cannot read an instrument, it is as much his duty to have it read to
him before he signs it as it would be to read it before signing if he were able to do so.”).
Thus, this Court strikes the affirmative defense.
Defendants allege that Charter One’s claim is barred by the doctrine of unclean
hands. The doctrine of unclean hands applies if a party seeking equitable relief is guilty
of misconduct, fraud, or bad faith toward the party against whom relief is sought and
the misconduct is connected to the transaction at issue in the litigation. Zahl v. Krupa,
850 N.E.2d 304, 309-10 (Ill. App. Ct. 2006). Significantly, the doctrine only applies
where the plaintiff seeks equitable relief. Id. Here, Charter One does not seek equitable
relief, but only the legal remedy of money damages. Accordingly, this court strikes
Defendants’ inapplicable defense based on the doctrine of unclean hands.
Defendants finally allege that Charter’s One claim is barred by its own bad faith.
Neither party identified authority stating whether bad faith, apart from the doctrine of
unclean hands, constitutes an affirmative defense under Illinois law. To the extent bad

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faith constitutes an independent defense under Illinois law, this Court will allow
Defendants’ assertions concerning Charter One’s bad faith to stand.
CONCLUSION
For the foregoing reasons, this Court grants Charter One’s motion to dismiss
Defendants’ counterclaims and grants in part and denies in part Charter One’s motion
to strike Defendants’ affirmative defenses.

Charles P. Kocoras
United States District Judge
Dated: July 13, 2011

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