Beal Bank USA v. Swift et al

Filing 27

MEMORANDUM Opinion and Order written by the Honorable Gary Feinerman on 1/26/2017.Mailed notice.(jlj, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
BEAL BANK USA,
Plaintiff,
vs.
MARCIA SWIFT and CHRISTOPHER SWIFT,
Defendants.

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16 C 10729
Judge Gary Feinerman

MEMORANDUM OPINION AND ORDER
Beal Bank USA brought this suit against Marcia and Christopher Swift to recover
payments due on a mortgage note. Several months earlier, Beal brought a state court action
against the Swifts to foreclose on the property subject to the mortgage and to recover a personal
deficiency judgment. See Beal Bank USA v. Swift, Case 2016 CH 593 (Cir. Ct. Kane Cnty., Ill.
filed June 10, 2016) (state court complaint reproduced at Doc. 7-1). The Swifts have moved to
dismiss or stay this case under the doctrine set forth in Colorado River Water Conservation
District v. United States, 424 U.S. 800 (1976), pending resolution of the state court action. The
motion is granted.
Background
In 2011, an affiliate of Beal brought a foreclosure action on the Swifts’ property in state
court. See LNV Corp. v. Swift, Case 2011 CH 2069 (Cir. Ct. Kane Cnty., Ill. filed June 2, 2011)
(state court complaint reproduced at Doc. 7-2). That action was dismissed without prejudice in
January 2016. Doc. 7-3 at 20.
In June 2016, Beal filed a foreclosure action in state court against the same property.
Doc. 7-1. The complaint alleged that the Swifts failed to pay what they owed under the note

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secured by the mortgage, resulting in a debt of $449,500.00 plus interest and other charges. Id.
at 3 ¶ 3J. The complaint sought to foreclose on the property and also to collect a “personal
deficiency judgment” against the Swifts for the total amount owed. Id. at 4 ¶ 3M, 5.
In November 2016, Beal filed the present suit in this court. Doc. 1. The complaint
alleges that the Swifts failed to make payments due on the mortgage note, resulting in their
owing $449,500.00 plus interest. Id. at ¶¶ 8, 11. As relief, Beal seeks a monetary judgment of
$449,500 plus interest and other charges. Id. at 3.
The Swifts have moved this court to abstain in light of the pendency of the state court
action. Doc. 7. At the presentment hearing, Beal suggested that the cases were not parallel
under Colorado River because the state court action was an in rem action against the property,
while this suit is an in personam action against the Swifts. When the court pointed out to Beal’s
counsel (who does not represent Beal in state court) that the state court complaint actually sought
a personal deficiency judgment against the Swifts, counsel said “we will discuss that and thanks
for bringing that to our attention.” Beal then successfully moved to amend its state court
complaint to remove its request for a personal deficiency judgment. Doc. 15-1 at 3; Doc 19-4.
Discussion
The Colorado River doctrine provides that “a federal court may stay or dismiss a suit in
federal court when a concurrent state court case is underway, but only under exceptional
circumstances and if it would promote ‘wise judicial administration.’” Freed v. J.P. Morgan
Chase Bank, N.A., 756 F.3d 1013, 1018 (quoting Colorado River, 424 U.S. at 818); see also
Caminiti & Iatarola, Ltd. v. Behnke Warehousing, Inc., 962 F.2d 698, 700 (7th Cir. 1992). The
Supreme Court “has cautioned that abstention is appropriate only in ‘exceptional circumstances,’
and has also emphasized that federal courts have a ‘virtually unflagging obligation … to exercise

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the jurisdiction given them.’” AXA Corporate Solutions v. Underwriters Reins. Corp., 347 F.3d
272, 278 (7th Cir. 2003) (alteration in original) (quoting Colorado River, 424 U.S. at 813, 817)
(citation omitted). In determining whether to abstain, the court’s task is “not to find some
substantial reason for the exercise of federal jurisdiction by the district court; rather, the task is to
ascertain whether there exist exceptional circumstances, the clearest of justifications, that can
suffice under Colorado River to justify the surrender of that jurisdiction.” Moses H. Cone Mem’l
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25-26 (1983) (internal quotation marks and
emphases omitted).
The Colorado River analysis has two steps. First, the court asks “whether the state and
federal court actions are parallel.” Freed, 756 F.3d at 1018; see also Caminiti, 962 F.2d at 700.
If the proceedings are not parallel, Colorado River abstention must be denied. Freed, 756 F.3d
at 1018. If the proceedings are parallel, the court then must weigh ten non-exclusive factors to
determine whether abstention is proper. Ibid.
I.

Whether the Federal and State Cases Are Parallel
State and federal suits need not be identical to be parallel. See Adkins v. VIM Recycling,

Inc., 644 F.3d 483, 498-99 (7th Cir. 2011) (“[F]or Colorado River purposes … [p]recisely formal
symmetry is unnecessary.”); Interstate Material Corp. v. City of Chicago, 847 F.2d 1285, 1288
(7th Cir. 1988) (“Interstate is correct in its assertion that differences exist. However, the
requirement is of parallel suits, not identical suits.”). Rather, suits are parallel when
“substantially the same parties are contemporaneously litigating substantially the same issues in
another forum.” Freed, 756 F.3d at 1019. “The question is not whether the suits are formally
symmetrical, but whether there is a substantial likelihood that the [state] litigation will dispose of
all claims presented in the federal case.” AAR Int’l, Inc. v. Nimelias Enters. S.A., 250 F.3d 510,

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518 (7th Cir. 2001) (internal quotation marks omitted); see also Huon v. Johnson & Bell, Ltd.,
657 F.3d 641, 646 (7th Cir. 2011) (same). “Any doubt regarding the parallel nature of the [state]
suit should be resolved in favor of exercising jurisdiction.” Adkins, 644 F.3d at 499 (alteration in
original) (internal quotation marks omitted).
Here, there is no dispute that the parties in the state and federal cases are the same.
Beal’s argument against parallelism submits that the cases advance different claims and
remedies: an in personam claim for a monetary judgment against the Swifts in the federal case,
and an in rem claim for foreclosure against the property in the state case. Doc. 19 at 5-6. Beal’s
position fails for two independent reasons.
First, a party opposing abstention may not unilaterally manufacture non-parallelism. In
state court, Beal initially sought a foreclosure against the property and a deficiency judgment
against the Swifts. The complaint in this court was redundant, seeking a contract judgment
against the Swifts on the note. True, a deficiency judgment against the mortgagor in a
foreclosure action can occur only after a foreclosure sale—with the deficiency judgment being
the difference between the amount owed and the amount for which the property is sold, see 735
ILCS 5/15-1508(e); 735 ILCS 5/15-1508(b)(2)—while a contract claim on the note need not
await a foreclosure sale. See LP XXVI, LLC v. Goldstein, 811 N.E.2d 286, 290 (Ill. App. 2004)
(“These remedies may be pursued consecutively or concurrently.”). That distinction, however, is
immaterial. A contract action on the note achieves the same ultimate remedy as a foreclosure
suit yielding a foreclosure sale followed by a deficiency judgment—the bank recovers the
amount owed on the note—and both actions ultimately turn on the same question—whether the
mortgagors defaulted on the note. So, as it originally stood, the state court action was parallel
with the federal suit. See Freed, 756 F.3d at 1021 (“In short, the claims in both federal cases are

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premised upon the scheme that is now before the state court. … The cases rely on the same set of
facts, present substantially similar legal issues, and involve substantially the same parties. We
agree … that the federal actions are parallel to … the state court proceeding.”).
It was only after this court alerted Beal’s federal counsel that Beal’s state court action
pursued personal monetary relief against the Swifts that it quickly amended its state court
complaint to drop that request for relief. Then, in its Colorado River response brief, Beal argued
that the two actions are not parallel because the state court suit no longer seeks that monetary
relief. Beal’s gambit fails, for the Colorado River doctrine is not so naïve as to allow a party to
strategically and cynically manipulate its pleadings to destroy parallelism. See Freed, 756 F.3d
at 1020 (“The parallel nature of the actions cannot be destroyed by … repackaging the same
issue under different causes of action.”); Clark v. Lacy, 376 F.3d 682, 686-87 (7th Cir. 2004)
(same); Lumen Const., Inc. v. Brant Const. Co., Inc., 780 F.2d 691, 696 (7th Cir. 1985)
(affirming abstention where the alleged lack of parallelism stemmed from the federal plaintiff’s
choice of which parties to bring into the state case); Freed v. Friedman, __ F. Supp. 3d __, 2016
WL 6070357, *6 (N.D. Ill. Oct. 17, 2016) (“[A] finding that the cases are not parallel predicated
on [the plaintiff’s choices of whom to join] would unjustly reward strategic behavior, because [a
potential defendant’s] absence from the state proceedings is entirely attributable to [the
plaintiff].”); Knight v. DJK Real Estate Grp., LLC, 2016 WL 427614, *5 (N.D. Ill. Feb. 4, 2016)
(“[A party] by its unilateral choice cannot destroy parallelism.”).
Even if Colorado River in theory allowed parties to unilaterally and intentionally
engineer non-parallelism, Beal’s amendment of its state court complaint failed to destroy the
parallelism between the state court action and this suit. As noted, actions are parallel if
“substantially the same parties are contemporaneously litigating substantially the same issues in

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another forum.” Freed, 756 F.3d at 1019. And parallelism is satisfied where “there is a
substantial likelihood that the [state] litigation will dispose of all claims presented in the federal
case.” AAR Int’l, 250 F.3d at 518 (internal quotation marks omitted). Importantly, the test does
not require that the relief sought be the same. See Clark, 376 F.3d at 687 (“Even though an
additional remedy is sought in the federal action, the liability issues (which are the central legal
issues) remain the same in both cases.”).
Even as currently framed, the state action concerns the same central issue, involving the
same parties, as the federal suit: whether the Swifts defaulted on the mortgage note. If they did,
then Beal is entitled to a foreclosure judgment in the state action and to recover on the note in
this suit. If Beal proves a default in the state action, there is a substantial likelihood (in fact, a
virtual certainty) that it will prevail in this suit; and if Beal fails to prove a default in the state
action, there is a substantial likelihood (and, again, a virtual certainty) that it will lose in this suit.
Staying this case will allow that central question to be answered in the state action, which in turn
will lead to a prompt resolution of this suit, as whichever party succeeds in state court may
invoke preclusion principles here. That is the essence of parallelism. See Rogers v. Desiderio,
58 F.3d 299, 302 (7th Cir. 1995) (“It is sensible to stay proceedings until an earlier-filed state
case has reached a conclusion, and then (but only then) to dismiss the suit outright on grounds of
… preclusion.”).
Beal places great weight on TruServ Corp. v. Flegles, Inc., 419 F.3d 584 (7th Cir. 2005),
which holds that even where compulsory joinder rules require a claim to be brought in a state
action or forfeited, a federal suit bringing that claim is not necessarily parallel to the state action
where it was not brought. Id. at 592-93. TruServ is inapposite, as the resolution of the claims
there turned on the different underlying issues: the state court case concerned a misrepresentation

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claim by Party A against Party B, while the federal case concerned involved a debt collection
claim by Party B against Party A. Id. at 588. Here, by contrast, the claims turn on the same
underlying issue, and thus are parallel.
II.

The Colorado River Factors
The second step in the Colorado River analysis requires examining and balancing these

ten non-exclusive factors:
1) whether the state has assumed jurisdiction over property;
2) the inconvenience of the federal forum;
3) the desirability of avoiding piecemeal litigation;
4) the order in which jurisdiction was obtained by the concurrent forums;
5) the source of governing law, state or federal;
6) the adequacy of state-court action to protect the federal plaintiff’s rights;
7) the relative progress of state and federal proceedings;
8) the presence or absence of concurrent jurisdiction;
9) the availability of removal; and
10) the vexatious or contrived nature of the federal claim.
Freed, 756 F.3d at 1018. “No one factor is necessarily determinative; a carefully considered
judgment taking into account both the obligation to exercise jurisdiction and the combination of
factors counseling against that exercise is required.” Colorado River, 424 U.S. at 818-19. The
court will address each factor in turn. See Freed, 756 F.3d at 1022 (noting that Colorado River
abstention requires adherence to “rigorous standards,” which were met where this court
“carefully addressed each of the ten factors and provided sufficient explanations for its
findings”).

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1. Whether the State has assumed jurisdiction over property. Because Beal initiated a
foreclosure action in state court, the state court assumed jurisdiction over the Swifts’ property.
Beal is right that this suit seeks separate relief on the mortgage note, Doc. 19 at 6-9, but that
relief is inexorably tied to the question whether the Swifts defaulted on the note secured by the
property over which the state court has assumed jurisdiction. This factor thus favors abstention.
2. The inconvenience of the federal forum. The state court, located in Kane County, is
about forty miles from the federal courthouse, and the Swifts live in Kane County. Although the
federal forum is slightly more inconvenient to the Swifts than the state forum, the difference is
not significant. So this factor is neutral.
3. The desirability of avoiding piecemeal litigation. “Piecemeal litigation occurs when
different tribunals consider the same issue, thereby duplicating efforts and possibly reaching
different results.” Day v. Union Mines Inc., 862 F.2d 652, 659 (7th Cir. 1988). “Dual
proceedings could involve what we have called a grand waste of efforts by both the court and
parties in litigating the same issues regarding the same contract in two forums at once.” Ibid.
(internal quotation marks omitted). Because the federal and state suits involve the same parties
and legal issues, and because both suits turn on whether the Swifts defaulted on the mortgage
note, proceeding simultaneously in both forums would ensure “duplicative and wasteful
litigation with the potential of inconsistent resolutions of the issue.” Caminiti, 962 F.2d at 701.
Simultaneous proceedings also would incent one or the other party to attempt to delay
proceedings in one forum should the other forum appear more favorable. See LaDuke v.
Burlington N. R.R. Co., 879 F.2d 1556, 1560 (7th Cir. 1989). This factor strongly favors
abstention.

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4. The order in which jurisdiction was obtained by the concurrent forums. This factor
favors abstention, as Beal filed the state action on June 10, 2016, and did not file this suit until
November 18, 2016, over five months later. See Lumen Constr., 780 F.2d at 697 (holding that
this factor favored abstention where the state case was filed nearly five months before the federal
case).
5. The source of governing law, state or federal. The source of the governing law here is
state law, which favors abstention. See Day, 862 F.2d at 660 (“[A] state court’s expertise in
applying its own law favors a Colorado River stay.”).
6. The adequacy of state court action to protect the federal plaintiff’s rights. Beal
contends that the state court cannot adequately protect its rights because the state court action
does not entitle it to a jury trial. Doc. 19 at 13. But that is the bed Beal made; had it brought in
the state court a contract claim on the note, that claim would have been triable to a jury. See Ill.
Const. 1970, art. I, § 13; Catania v. Local 4250/5050 of Comm’cns Workers of Am., 834 N.E.2d
966, 970 (Ill. App. 2005). In any event, Beal cannot assert with a straight face that in rem
foreclosure actions fail to adequately protect its rights; banks in Beal’s position file millions of
those actions annually, and Beal does not even venture to explain how those actions
disadvantage the banks.
Beal also contends that because it is no longer requesting a personal deficiency judgment
in the state court action, the state court “will not provide [Beal] with the separate remedy that [it
is] entitled to under the Note.” Id. at 14. Again, this is a problem of Beal’s own making. Beal
could have persisted in its request for a personal deficiency judgment in state court, which would
have been the functional equivalent of a recovery on a contract claim on the note. And Beal does
not explain why it could not have included a contact claim on the note in its state court action.

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In any event, where a federal claim is stayed rather than dismissed outright, the risk that a
state court proceeding will not protect the federal plaintiff’s rights is lessened, because if the
state proceeding proves itself inadequate, the possibility of reviving the federal proceeding
remains. Thus, even if Beal’s arguments were persuasive, the risk to its rights would be
mitigated because this court, in granting the Swifts’ motion, will do so by way of a stay rather
than outright dismissal. See Freed, 756 F.3d at 1023 (“[The plaintiff]’s substantial rights are
protected by granting a stay because it allows him the possibility to revive his federal litigation
depending on the outcome in state court or in the unlikely event that the state court action is
inadequate.”). All things considered, then, the sixth factor favors abstention.
7. The relative progress of state and federal proceedings. There was an “absence of any
proceedings in [this court], other than the filing of the complaint, prior to the motion to
[abstain].” Colorado River, 424 U.S. at 820. But nor has there been extensive progress in the
state court action. This factor is neutral.
8. The presence or absence of concurrent jurisdiction. All of Beal’s claims in federal
court arise under Illinois law, and the Swifts undoubtedly are susceptible to suit in Illinois court,
so this factor favors abstention. Cf. Caminiti, 962 F.2d at 702-03 (holding that the state court’s
lack of jurisdiction to hear a federal claim weighed against abstention).
9. The availability of removal. This factor recognizes the policy against a federal court’s
hearing claims that are closely related to non-removable state proceedings. See Day, 862 F.2d at
659-60. The state court action is non-removable under the forum defendant rule because
diversity jurisdiction provides the only basis for removal and the Swifts (the state court
defendants) are Illinois citizens. See 28 U.S.C. § 1441(b)(2) (“A civil action otherwise
removable solely on the basis of jurisdiction under section 1332(a) of this title may not be

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removed if any of the parties in interest properly joined and served as defendants is a citizen of
the State in which such action is brought.”); Hurley v. Motor Coach Indus., Inc., 222 F.3d 377,
378 (7th Cir. 2000) (discussing the forum defendant rule). Thus, although abstention will delay
or eliminate Beal’s “opportunity to litigate in a federal forum—an opportunity to which it is
entitled under 28 U.S.C. § 1332,” AXA Corporate Solutions, 347 F.3d at 279, this factor favors
abstention because this suit is bound up with claims in the non-removable state case. See Day,
862 F.2d at 660 (“[R]elated removable claims should be decided in state court along with the
non-removable claims.”). Had Beal wished to litigate this entire matter in federal court, it could
brought under the diversity jurisdiction a suit seeking foreclosure on the property, a deficiency
judgment against the Swifts, and a contract recovery on the note. Having elected not to do so,
Beal cannot now complain of or escape the consequences of its choice.
10. The vexatious or contrived nature of the federal claims. Because Beal easily could
have brought (and initially did bring) in state court its claim for monetary relief against the
Swifts, the federal suit is “vexatious” and “contrived” within the meaning of Colorado River.
See Interstate Material Corp, 847 F.2d at 1289 (“[T]he federal suit could be considered both
vexatious and contrived. … [W]e see no reason why all claims and all parties could not have
been … part of one suit.”). Even if the federal suit were not vexatious or contrived at its
inception, it surely became so when Beal, having been alerted by this court of its state court
personal deficiency claim, amended its state court complaint in an unsuccessful attempt to avoid
parallelism rather than proceed in one forum. This factor thus weighs in favor of abstention.
In sum, nearly all of the Colorado River factors favor abstention, providing the
“exceptional circumstances” necessary to abstain. The only remaining question is whether this
suit should be dismissed or stayed. The Seventh Circuit routinely holds that Colorado River

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should be implemented through a stay, not dismissal. See Montano v. City of Chicago, 375 F.3d
593, 602 (7th Cir. 2004); CIGNA Healthcare of St. Louis, Inc. v. Kaiser, 294 F.3d 849, 851-52
(7th Cir. 2002). Accordingly, this suit is stayed pending resolution of the state court action.
When that action concludes, any party may move this court to lift the stay and proceed with the
federal suit in a manner consistent with the state court’s rulings and any applicable preclusion
principles. See Rogers 58 F.3d at 302.
Conclusion
For the foregoing reasons, the Swifts’ motion to abstain under the Colorado River
doctrine is granted, and this case is stayed pending resolution of Beal Bank USA v. Swift, Case
2016 CH 593 (Cir. Ct. Kane Cnty., Ill. filed June 10, 2016).

January 26, 2017
United States District Judge

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