JLM Financial Investments 4, LLC v. Aktipis

Filing 41

MEMORANDUM Opinion and Order Signed by the Honorable Joan B. Gottschall on 1/9/2012:(mb, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
JLM FINANCIAL INVESTMENTS 4
LLC,
Plaintiff,
v.
STELIOS AKTIPIS
Defendant.

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Case No. 11 C 2561
Judge Joan B. Gottschall

MEMORANDUM OPINION AND ORDER
In this breach of contract diversity action, Defendant Stelios Aktipis moves to
dismiss Plaintiff JLM Financial Investments 4 LLC’s (“JLM’s”) complaint or, in the
alternative, moves that this court abstain from resolving this matter pending the outcome
of related state court proceedings. For the reasons stated below, the court denies Aktipis’
motion.
I. BACKGROUND
JLM is the assignee of a mortgage involving the Spring Hill Fashion Corner
Shopping Center (the “Property”) which was originally recorded in Kane County, Illinois
on November 10, 2004. Springhill Gateway LLC (“Springhill”) assumed all obligations
under the mortgage’s underlying $7,900,000 loan (the “Loan”) on May 11, 2007, and on
May 7, 2007 Aktipis, in his individual capacity, executed a Guaranty of Recourse
Obligations of Borrower (the “Guaranty”) for the benefit of Trustee and its successors
and assigns (in this case, JLM).

In its complaint, JLM alleges that various mechanics liens have encumbered the
Property. (Compl. ¶ 12-14.) In the Guaranty, Aktipis agreed to be held personally liable
for all amounts due and payable under the Loan “in the event of [Springhill’s] default
under the provisions of the Note, Security Instrument, or other Security Documents
relating to . . . (ii) a prohibition of sale, transfer, or encumbrance of the Property.” (Id. ¶
15.) Because encumbrances can produce default under the Loan, JLM alleges that the
Guaranty makes “Atkipis . . . liable for all amounts now due and payable under the
Loan.” (Id. ¶ 29.) JLM also alleges that Springhill has failed to pay required monthly
installments of principal and interest on the Loan since April 2010. (Id. ¶ 22.)
On August 10, 2010, JLM’s predecessor-in-interest filed a lawsuit to foreclose on
the Property in the Circuit Court of Kane County, Illinois (Case No. 10-CH-3862). This
lawsuit relating to the Guaranty was filed on April 15, 2011. Aktipis argues that
abstention is appropriate under Colorado River Water Conservation Dist. v. United
States, 424 U.S. 800, 818 (1976), because, in his view, the state court action will likely
dispose of all of the claims presented in the federal case. (Def. Br. at 2.);
II. LEGAL STANDARD
“[A] federal court may stay or dismiss a suit when there is a concurrent state
proceeding and the stay or dismissal would promote ‘wise judicial administration.’” AXA
Corp. Sol’ns v. Underwriters Reins. Corp., 347 F.3d 272, 278 (7th Cir. 2003) (quoting
Colorado River, 424 U.S. at 818). Nonetheless, abstention is allowed only in
“exceptional circumstances,” and the Seventh Circuit recognizes a general presumption
against abstention. AXA, 347 F.3d at 278. In assessing the propriety of abstention under
Colorado River, “the district court must undertake a two-part inquiry.” Tyrer v. City of

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South Beloit, Ill., 456 F.3d 744, 751 (7th Cir. 2006). First, the court must decide whether
the concurrent state and federal actions are “actually parallel.” Id. (quoting Clark v. Lacy,
376 F.3d 682, 685 (7th Cir. 2004)). Once the court determines that the actions are
parallel, the court can then engage in an inquiry into several factors to assess whether
“exceptional circumstances” warrant abstention. Id.
III. DISCUSSION
Here, the court may dispose of this matter on the first prong because the state and
federal actions in this case are not parallel. Parallel actions do not need to be formally
symmetric. See Clark, 376 F.3d at 686. However, there must be a “substantial likelihood
that the [state court] litigation will dispose of all claims presented in the federal case.”
AAR Int’l, Inc. v. Nimelias Enters. S.A., 250 F.3d 510, 518 (7th Cir. 2001). To assess
whether state and federal proceedings are parallel, “a district court should examine
whether the suits involve the same parties, arise out of the same facts and raise similar
factual and legal issues.” Tyrer, 456 F.3d at 744. The court agrees with JLM that the
suits essentially involve the same parties and arise out of the same set of facts; however,
the legal issues presented by the two cases are sufficiently distinct such that the state and
federal cases are not parallel.
A. The Legal Rights and Obligations of the Guarantor Are Distinct from
Those of the Mortgagor
The first reason the state foreclosure action is not parallel to the federal action on
the Guaranty contract is because the rights and obligations associated with the
proceedings are substantially different. The Guaranty is contained in a contract distinct
and independent from the mortgage note and loan. As noted in a similar case, “A
foreclosure proceeding is a creature of property law, whereas a guaranty agreement is

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contractual in nature.” Mitsui Taiyo Kobe Bank, Ltd. v. First Nat’l Realty & Dev. Co.,
Inc, 788 F.Supp. 1007, 1009 (N.D. Ill. 1992). Because a mortgagee may ultimately be
forced into a foreclosure sale when a risky borrower assumes a mortgage, moreover, a
party may “bargain[] for and receive[] additional assurances from the defendant[] that
the debt will be paid” apart and separate from the mortgage and note. Id. (emphasis
added). As in Mitsui, where the value of a guaranty would be greatly diminished if the
court deemed the state and federal actions to be parallel and thus stayed the proceeding,
JLM would lose a substantial benefit of its bargain. In a guaranty like the one in this case,
“the guarantor makes an unconditional promise to pay the lender as soon as there is a
default by the principal debtor.” Bank of Am., N.A. v. WRT Realty, LLP, 769 F. Supp. 2d
36, 40-41 (D. Mass. 2011). The entire purpose of the contract is to allow the lender to
pursue remedies before awaiting the result of a foreclosure proceeding. This purpose
would be thwarted if this court were to grant Atkipis a stay.
B. Several Provisions of the Guaranty Contract Counsel Against Abstention
and Render this Case Independent from the State Mortgage Proceeding
Several bargained-for rights in the Guaranty contract underscore why this
guaranty action is not parallel to the state court foreclosure proceeding. First, Atkipis
agreed that his obligations under the Guaranty contract would not be impaired by JLM’s
assertion of rights through a foreclosure proceeding:
Guarantor further agrees that the validity of this Guaranty and the obligations of
Guarantor hereunder shall in no way be terminated, affected or impaired (a) by
reason of the assertion by Lender of any rights or remedies which it may have
under or with respect to either the Note, the Security Instrument, or the Other
Security Documents, against any person obligated thereunder or against the owner
of the Property . . . . (Guaranty at 3 (emphasis added).)

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And further, the parties agreed that an action on the Guaranty contract may proceed
independently from any foreclosure action:
This is a guaranty of payment and not of collection and upon any default of
Borrower under the Note, the Security Instrument or the Other Security
Documents, Lender may, at its option, proceed directly and at once, without
notice, against Guarantor to collect and recover the full amount of the liability
hereunder or any portion thereof, without proceeding against Borrower or any
other person, or foreclosing upon, selling, or otherwise disposing of or collecting
or applying against any of the mortgaged property or other collateral for the Loan.
(Id. at 5.)
Ultimately, “‘[a] stay of the proceedings would effectively change the terms of the
bargain by precluding the [plaintiff] from proceeding on the guaranty independent of its
action on the underlying loan.’” Mitsui, 788 F. Supp. at 1009 (quoting Nat’l Bank of
Detroit v. United States, 1 Cl.Ct. 712, 715 (1983)). The agreement creates legal
obligations that cannot be disposed of by waiting for the state court’s resolution of the
issue. That would subvert the parties’ intent.
C. The State Foreclosure Proceeding Is Unlikely To Dispose of this Action
Moreover, there is not a “substantial likelihood that the state litigation will
dispose of all claims presented in the federal case.” See Fofi Hotel Co., Inc. v. Davfra
Corp., 846 F. Supp. 1345, 1352 (N.D. Ill. 1994). Certain issues within the cases may be
intertwined; insofar as the Guaranty contract guarantees repayment “upon any default of
Borrower under the Note,” as quoted above, the default determination in the foreclosure
proceeding with respect to the mechanics liens that allegedly encumber the Property will
be relevant in assessing whether Aktipis breached his obligations under the Guaranty
contract. Nonetheless, “[t]he fact that the foreclosure proceeding and the present case
have a common issue, i.e., whether the borrower defaulted on the loan agreement, does
not make the two suits parallel.” Mitsui, 788 F.Supp. at 1010; see also RepublicBank

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Dallas Nat’l Ass’n v. McIntosh, 828 F.2d 1120, 1121 (5th Cir. 1987) (noting that,
although “the validity of [a] promissory note” was a common issue between two actions,
“other issues were disparate” where one suit was about the enforceability of the mortgage
and another suit where a “guaranty agreement [was] at issue”).
As noted above, this suit focuses on contract interpretation and the provisions of
the Guaranty contract. No analysis of the validity or applicability of the Guaranty will be
determined by the Kane County Circuit Court, which will assess only whether the Loan
documents entitle JLM to foreclose on the Property. Meanwhile, the quoted Guaranty
provisions above suggest that Atkipis may be liable on the Guaranty regardless of the
outcome of the foreclosure suit. (See Guaranty at 3 (noting that Atkipis’ obligations are
not “impaired” simply because JLM’s asserts its rights and remedies under the Loan
agreement)); Cf. Mitsui, 788 F. Supp. at 1010 n.4 (“It should also be noted that
defendants have apparently waived the use of a possible favorable outcome in the
foreclosure proceeding as defense to liability on the guaranty.”)1
Finally, to the extent that issue preclusion may apply to the default determination,
the parties should bring any judgment of the Kane County Circuit Court to this court’s
attention so that it may “consider whether the doctrine of issue preclusion applies.” See
AXA, 347 F.3d at 280.2

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These issues distinguish this case from Corus Bank, N.A. v. De Guardiola, 593 F. Supp. 2d. 991
(N.D. Ill. 2008). Although Corus Bank held that a foreclosure proceeding and breach of guaranty suit were
parallel, the court reached that conclusion because it determined that the issue of a possible breach of a loan
agreement was dispositive in both cases. See id. at 994. But, as discussed above, that is not enough to
render the two suits parallel here. Corus Bank did not analyze the provisions of the relevant guaranty
contract to assess whether the guaranty suit should, as a matter of contract, proceed independently from the
foreclosure suit, despite the fact that arguments were raised to that effect. When examined in relation to
other similar cases, Corus Bank appears to be against the weight of authority in this and other districts.
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The court expresses no view on the merits of Atkipis’ preclusion argument at this time.

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* * *
For the reasons stated above, the court doubts that the federal and state actions at
issue here are sufficiently parallel to justify abstention under Colorado River. Thus, the
court declines to stay or dismiss this case. See AAR, 250 F.3d at 520 (noting that “any
doubt regarding the parallel nature of the [state court] suit should be resolved in favor of
exercising jurisdiction”).

IV. CONCLUSION
The motion to dismiss or, in the alternative, motion to abstain is denied.
ENTER:

/s/
JOAN B. GOTTSCHALL
United States District Judge
DATED: January 9, 2012

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