Avila v. CitiMortgage, Inc. et al

Filing 50

MEMORANDUM Opinion and Order signed by the Honorable Ronald A. Guzman on 10/2/2013: For the reasons set forth above, the Court denies Citi's motion to strike class allegations 19 , grants Citi's motion to dismiss 16 , dismisses with out prejudice plaintiff's breach of contract and breach of fiduciary duty claims (Counts I and II) and dismisses with prejudice his conversion claim (Count III). Plaintiff has fourteen days from the date of this Order to amend Counts I and II, if he can do so and comply with Rule 11. If he fails to do so in that period, the Court will dismiss those claims and this case with prejudice. Mailed notice (cjg, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
DANIEL AVILA, on behalf of himself
and all persons similarly situated,
Plaintiff,
v.
CITIMORTGAGE, INC. and
RESTORE CONSTRUCTION, INC.,
Defendants.

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13 C 3566

Judge Ronald A. Guzmán

MEMORANDUM OPINION AND ORDER
Defendant Citimortgage, Inc. (“Citi”) moves pursuant to Federal Rule of Civil Procedure
(“Rule”) 12(b)(6) to dismiss the breach of contract, breach of fiduciary duty and conversion claims
asserted in Counts I-III of the complaint and Rule 12(f) to strike the class allegations from them.1
For the reasons set forth below, the Court grants the motion to dismiss and denies the motion to
strike.

Facts
On February 10, 2005, plaintiff executed a mortgage in favor of Citi on his property at 4734
South Bishop Street in Chicago, Illinois. (See Compl., Ex. A, Mortgage at 15-16.) The mortgage
required plaintiff to maintain property insurance “in the amounts . . . and for the periods that [Citi]
requires.” (Id. at 6.) It also states:

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Plaintiff has voluntarily dismissed Count V, which was asserted only against defendant
Restore Construction Inc., and the Count IV negligence claim asserted against Citi. (See July 8,
2013 & Aug. 12, 2013 Orders.)

Unless Lender and Borrower otherwise agree in writing, any insurance proceeds . .
. shall be applied to restoration or repair of the Property, if the restoration or repair
is economically feasible and Lender’s security is not lessened. During such repair
and restoration period, Lender shall have the right to hold such insurance proceeds
until Lender has had an opportunity to inspect such Property to ensure the work has
been completed to Lender’s satisfaction, provided that such inspection shall be
undertaken promptly. Lender may disburse proceeds for the repairs and restoration
in a single payment or a series of progress payments as the work is completed. . . .
If the restoration or repair is not economically feasible or Lender’s security would
be lessened, the insurance proceeds shall be applied to the sums secured by this
[mortgage], whether or not then due, with the excess, if any, paid to Borrower. . .
(hereafter, “loss provision”).
(Id. at 6-7; see id. at 4.)
On July 4, 2010, plaintiff’s property was damaged by a fire. (Compl. ¶ 85.) His insurer
deposited about $150,000.00 with Citi to be used to repair the property. (Id. ¶ 78.) Citi paid
$51,532.18 of the insurance proceeds to the contractor plaintiff hired to do the work, though the
work had been done poorly or not at all. (Id. ¶¶ 78-80, 85-88.) Moreover, Citi did not attempt to
get the money back from the contractor and applied the remainder of the proceeds to plaintiff’s debt.
(Id. ¶¶ 14-15.)
Plaintiff alleges that since April 15, 2003, Citi has entered into thousands of mortgages
containing a similar loss provision pursuant to which it has received insurance proceeds pending
property restoration but has instead applied them to the borrowers’ debts. (Id. ¶ 31.)

Discussion
Motion to Dismiss
On a Rule 12(b)(6) motion to dismiss, the Court accepts as true all well-pleaded factual
allegations of the complaint, drawing all reasonable inferences in plaintiff’s favor. Hecker v. Deere
& Co., 556 F.3d 575, 580 (7th Cir. 2009). “[A] complaint attacked by a Rule 12(b)(6) motion to
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dismiss does not need detailed factual allegations” but must contain “enough facts to state a claim
for relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
To state a viable contract claim, plaintiff must allege, among other things, that he performed
his contractual obligations, Citi did not perform its obligations and plaintiff was damaged as result.
See Mannion v. Stallings & Co., Inc., 561 N.E.2d 1134, 1138 (Ill. App. Ct. 1990) (setting forth
elements of contract claim). Defendant contends that these allegations are lacking.
With respect to the breach and damage elements, the Court disagrees. The mortgage loss
provision gives Citi two options. If restoration is economically feasible, Citi “shall” apply the
insurance proceeds to the restoration work. (See Compl., Ex. A, Mortgage at 6.) If restoration is
not economically feasible, Citi “shall” apply the insurance proceeds to the borrower’s debt. (Id.)
Plaintiff alleges that Citi did neither. Rather, it paid part of his insurance money to a contractor for
shoddy or non-existent work and applied the rest of it to plaintiff’s debt. (See Compl. ¶¶ 23-34.)
These allegations are sufficient to suggest that Citi breached the loss provision and plaintiff was
damaged as a result.
The Court agrees, however, that plaintiff has not alleged, explicitly or implicitly, that he
complied with his contractual obligations. Thus, the Court dismisses without prejudice the contract
claim.
In Count II, plaintiff asserts a breach of fiduciary duty claim, which requires plaintiff to
allege that such a duty exists, Citi breached it and that breach proximately caused plaintiff’s injury.
Neade v. Portes, 739 N.E.2d 496, 502 (Ill. 2000). Citi contends that the duty element is lacking.
The Court agrees. Though some relationships are fiduciary as a matter of law, the
debtor-creditor relationship is not one of them. Pommier v. Peoples Bank Marycrest, 967 F.2d 1115,

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1119 (7th Cir. 1992). Nonetheless, the Court can infer that a particular debtor-creditor relationship
is fiduciary in nature if one party alleges that he “placed trust and confidence in [the other]” such
that the other party “gained influence and superiority over him.” Santa Claus Indus., Inc. v. First
Nat’l Bank of Chi., 576 N.E.2d 326, 331 (Ill. App. Ct. 1991). “This degree of trust and confidence
can be shown by such factors as degree of kinship, age disparity, health, mental condition,
education, business experience, extent of reliance.” Id. Plaintiff’s allegations – that Citi breached
a contractual obligation to apply his insurance proceeds to the restoration of his property – do not
support the inference that the parties had a fiduciary relationship. (Compl. ¶¶ 7, 30, 46); see
Gary-Wheaton Bank v. Burt, 433 N.E.2d 315, 322 (Ill. App. Ct. 1982) (stating that a business
relationship in which one party has a “slightly dominant . . . position do[es] not operate to turn a
formal, contractual relationship into a confidential or fiduciary relationship”); see also Mid-Am.
Nat’l Bank of Chi. v. First Sav. & Loan Ass’n of S. Holland, 515 N.E.2d 176, 180-81 (Ill. App. Ct.
1987) (lender did not have fiduciary duty to tell borrowers that the property they were buying was
in a flood zone). Accordingly, the Court grants Citi’s motion to dismiss Count II.
In Count III, plaintiff asserts a conversion claim. “A proper complaint for conversion must
allege: (1) an unauthorized and wrongful assumption of control, dominion, or ownership by a
defendant over a plaintiff’s personalty; (2) plaintiff’s right in the property; (3) plaintiff’s right to the
immediate possession of the property, absolutely and unconditionally; and (4) a demand for
possession of the property.” Fonda v. Gen. Cas. Co. of Ill., 665 N.E.2d 439, 442 (Ill. App. Ct.
1996). Citi argues that the first and third elements are lacking.
The Court agrees. Money can be the subject of a conversion claim, but only if plaintiff
alleges that he “has a right to a specific, identifiable amount of money,” not “an indeterminate sum.”

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3Com Corp. v. Elecs. Recovery Specialists, Inc., 104 F. Supp. 2d 932, 940 (N.D. Ill. 2000). Plaintiff
alleges that Citi wrongfully applied his insurance proceeds but does not state the specific dollar
amount that was allegedly converted. Moreover, he does not, and given the language of the loss
provision cannot, allege that he had an absolute and unconditional right to the money. (See Compl.,
Ex. A, Mortgage at 7 (“During such repair and restoration period, Lender shall have the right to hold
such insurance proceeds . . . .”). Accordingly, the Court dismisses with prejudice the conversion
claim.

Motion to Strike Class Allegations
Plaintiff seeks to pursue its claims on behalf of a class defined as:
[A]ll persons who had mortgage agreements with Defendant, Citi, from April 15,
2003, to the present where insurance proceeds resulting from loss were deposited to
be held pending restoration and or repair, a nd where the Defendant, Citi, applied the
funds to reduce the sums secured by the Borrower’s mortgage rather than using the
funds to complete the restoration and repair.
(Compl. ¶ 15.) Citi contends that this definition is too broad and the class so defined does not meet
the requirements of Rule 23. Whether that is true, however, depends on facts that are not currently
before the Court. Absent such facts, the Court has no basis for striking the class allegations.

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Conclusion
For the reasons set forth above, the Court denies Citi’s motion to strike class allegations
[19], grants Citi’s motion to dismiss [16], dismisses without prejudice plaintiff’s breach of contract
and breach of fiduciary duty claims (Counts I and II) and dismisses with prejudice his conversion
claim (Count III). Plaintiff has fourteen days from the date of this Order to amend Counts I and II,
if he can do so and comply with Rule 11. If he fails to do so in that period, the Court will dismiss
those claims and this case with prejudice.
SO ORDERED.

ENTERED: October 2, 2013

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HON. RONALD A. GUZMAN
United States District Judge

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