Long et al v. Bank of America, N.A.

Filing 69

ORDER. Defendant Bank of America, N.A.'s Motion to Dismiss 15 is granted in part and denied in part. Plaintiffs are given until December 12, 2018, to file an amended complaint consistent with this order. Signed by the Honorable Jorge L. Alonso on 11/7/2018. Notices mailed by judge's staff (ntf, )

Case: 1:17-cv-02756 Document #: 69 Filed: 11/07/18 Page 1 of 7 PageID #:511

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
TAMMY JO LONG, and LUXURY
PROPERTIES, LLC,

Case No. 17 CV 2756

Plaintiffs,

Judge Jorge L. Alonso

v.
BANK OF AMERICA, N.A.,
Defendant.
ORDER

For the following reasons, Defendant Bank of America, N.A.’s Motion to Dismiss [15] is
granted in part and denied in part. Plaintiffs are given until December 12, 2018, to file an amended
complaint consistent with this order.
STATEMENT
Plaintiffs Tammy Jo Long and Luxury Properties, LLC, filed a six-count complaint against
Bank of America, N.A. (“BANA”), alleging claims of breach of contract and defamation, as well
for declaratory judgment and sanctions. BANA moved to dismiss the complaint in its entirety and
Plaintiffs responded in opposition as to all claims except their defamation claims which are
voluntarily dismissed. For the following reasons, BANA’s motion is granted in part and denied in
part.
Background
In 2013, the Bankruptcy Court for the Northern District of Illinois confirmed twin Chapter
11 plans of reorganization for plaintiff Tammy Jo Long and her then closely-held company Castle
Home Builders, Inc. (collectively, the “Reorganized Debtors”). Defendant Bank of America, N.A.
(“BANA”) was a creditor in the bankruptcy proceedings and voted in favor of the plans. Among
other things, the plans resulted in the mortgages of certain commercial properties of Long and
Castle Home Builders being rewritten and reassigned to a new mortgagor/borrower, co-plaintiff
Luxury Properties, LLC. Thereafter, Long and Luxury Properties made appropriate payments in
accordance with the new mortgages.
In 2014, however, certain creditors of the Reorganized Debtors, including BANA, sought
payments in accordance with the terms of the pre-bankruptcy mortgages. The Reorganized
Debtors moved the Bankruptcy Court for sanctions against the creditors for their failure to comply
with the terms of the reorganization plans. One creditor lost the trial of the issue, while the others
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including BANA settled the claim. BANA’s July 2014 settlement agreement with the Reorganized
Debtors provided them a payment and certain other consideration, and included a mutual nondisparagement agreement. [Dkt 18.] The non-disparagement provision provides that BANA:
[W]ill not, directly or indirectly, make any negative or disparaging statements
against the Releasees maligning, ridiculing, defaming, or otherwise speaking ill of
the Releasees, and their business affairs, practices or policies, standards, or
reputation . . . in any form . . . that relate to this Agreement, Information . . . and
the factual allegations made in the Litigation or any matter covered by the release
within this Agreement. Nothing in the Agreement shall, however, be deemed to
interfere with each party’s obligation to report transactions with appropriate
governmental, taxing and/or registering agencies.
[Id. ¶ 1(E).]
Following the settlement, the parties continued their relationship for more than a year
without incident. Beginning in 2016, however, BANA began falsely reporting to at least one credit
reporting agency that: (1) Long had filed another bankruptcy petition; (2) a Luxury Properties’
loan was “delinquent”; (3) foreclosure proceedings had been initiated on certain properties held
by Luxury Properties; and (4) certain loan payments had been missed and the account was past
due. Plaintiffs disputed the accuracy of this information and unsuccessfully attempted to engage
BANA to correct it. When their efforts were unsuccessful, this action followed.
Standard of Review
On a Rule 12(b)(6) motion to dismiss, the court accepts as true all well-pleaded factual
allegations of the complaint, drawing all possible inferences in plaintiff’s favor. See Hecker v.
Deere & Co., 556 F.3d 575, 580 (7th Cir. 2009). “[A] complaint attacked by a Rule 12(b)(6)
motion to dismiss does not need detailed factual allegations,” but it 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, 555,
570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 570). “Where a complaint
pleads facts that are ‘merely consistent with’ a defendant’s liability, it ‘stops short of the line
between possibility and plausibility of ‘entitlement to relief.’” Id. (quoting Twombly, 550 U.S. at
557). In reviewing the sufficiency of a complaint under the plausibility standard, [courts must]
accept the well-pleaded facts in the complaint as true, but [they] ‘need[] not accept as true legal
conclusions, or threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements.’” Alam v. Miller Brewing Co., 709 F.3d 662, 665-66 (7th Cir. 2013)
(quoting Brooks v. Ross, 578 F.3d 574, 581 (7th Cir. 2009)).
Analysis
Breach of Contract
Plaintiffs complain that BANA violated the 2014 settlement agreement’s nondisparagement provision by making false reports “based on . . . prior bankruptcies or pre2

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bankruptcy loans.” [Dkt 1 ¶ 60.] Plaintiffs allege BANA’s false statements damaged them by
causing Long’s credit rating to plummet, resulting in the denial of credit applications and
jeopardizing her business. BANA moves to dismiss the claim, arguing it is preempted both by the
Bankruptcy Code and the Fair Credit Reporting Act (“FCRA”), and that even if not preempted, it
nevertheless fails because the non-disparagement provision does not apply to credit reporting.
Plaintiffs argue in opposition that neither the Bankruptcy Code nor the FCRA preempt a claim
arising out of a private contract, and that because BANA’s reporting was false and injurious, the
exclusion provision of the non-disparagement agreement does not prevent the claim.
According to BANA, Plaintiffs’ breach of contract claim is preempted by the Bankruptcy
Code because it seeks to remedy what Plaintiffs acknowledge by their sanctions claims is actually
a claim based on a purported violation of the Bankruptcy Code. Plaintiffs contend the 2014
settlement agreement is a private contract that is independent of the prior bankruptcy proceedings
and enforceable by a non-bankruptcy court.
The Bankruptcy Code preempts “virtually all claims which allege misconduct in
Bankruptcy proceedings.” Cox v. Zale Delaware, Inc., 242 B.R. 444, 449-50 (N.D. Ill. 1999),
aff’d, 239 F.3d 910 (7th Cir. 2001) (collecting cases). A state law cause of action is preempted if,
absent the Code, there would be no cause of action. See id. at 450; Twomey v. Ocwen Loan
Servicing, LLC, No. 16-CV-0918, 2016 WL 4429895, at *2 (N.D. Ill. Aug. 22, 2016) (“[T]he
Bankruptcy Code preempts the field when it comes to remedying violations of injunctive orders
issued by bankruptcy courts.”). Conversely, the Bankruptcy Code does not preempt a state law
claim where it exists absent the Code, and can be determined without doing violence to the Code’s
purpose of adjudicating all competing claims to a debtor’s property in one forum and one
proceeding. See Wagner v. Ocwen Federal Bank, FSB, No. 99 C 5404, 2000 WL 1382222, at *2
(N.D. Ill. Aug. 28, 2000) (FDCPA claim not preempted by Bankruptcy Code where debt collector
who did not become creditor until after conclusion of bankruptcy matter attempted to collect
discharged debt).
Here, Plaintiffs seek damages for a violation of a private contract in which BANA promised
not to make negative or disparaging statements about Plaintiffs or their business affairs. As in
Wagner, Plaintiffs’ claim exists without reference to the Bankruptcy Code. 2000 WL 1382222, at
2. BANA’s cited authorities, on the other hand, concern state law claims that are intimately related
to the Bankruptcy Code. See, e.g., Twomey, 2016 WL 4429895, at *1-3 (holding the Bankruptcy
Code preempted state law claim concerning post-discharge collection efforts by a party to the
bankruptcy proceeding); Cox, 242 B.R. at 450 (“[T]here would be no cause of action absent the
Code.”); Holloway v. Household Automotive Finance Corp., 227 B.R. 501, 508 (N.D. Ill. 1998)
(“[T]he Bankruptcy Code contemplates and provides for a comprehensive scheme by which to
guard against fraud and remedy it.”).
Similarly, both the settlement agreement and the acts of which Plaintiffs complain all postdate confirmation of the plans, and no interpretation of the prior bankruptcy proceeding is
necessary to determine Plaintiffs’ claim. See Wagner, 2000 WL 1382222, at *2. Moreover, the
fact that the settlement agreement arose out of a sanctions matter in that action does not logically
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differentiate Plaintiffs’ claim from the breach claim of any other party to a purportedly violated
contract. See id.
Likewise, the Court is not persuaded by BANA’s assertion that Plaintiffs implicitly
concede Bankruptcy Code preemption by also bringing the sanctions claims discussed below.
Federal Rule of Civil Procedure 8(d) allows for alternate and inconsistent claims in pleadings.
The Court is also unpersuaded by BANA’s argument that because the breach claim is based
on statements to credit reporting agencies, section 1681t(b)(1)(F) of the FCRA preempts it.
Instead, the Court agrees with the well-reasoned decision of its colleague in Causay v. Wells Fargo
Bank, N.A., No. 16-CV-7398, 2016 WL 7188167 (N.D. Ill. Dec. 12, 2016), and concludes that
section 1681t(b)(1)(F)’s preemptive force does not apply to private contractual obligations.
Section 1681t(b)(1)(F) of the FCRA provides that “[n]o requirement or prohibition may be
imposed under the laws of any State . . . with respect to any subject matter regulated under . . .
section 1681s-2 of this title, relating to the responsibilities of persons who furnish information to
consumer reporting agencies . . . .” 15 U.S.C. § 1681t(b)(1)(F). Section 1681s-2 describes the
responsibilities of furnishers of information to consumer reporting agencies. It is undisputed that
BANA is governed by the terms of section 1681s-2 as a furnisher of information.
As the court explained in Causay, for FCRA preemption to apply, “two requirements must
be met: (1) the ‘requirement or prohibition’ – i.e., the legal duty giving rise to the claim – must be
‘imposed under the laws of any State’ . . . ; and (2) the state law claim must be related to ‘subject
matter regulated under § 1681s-2’.” Causay, 2016 WL 7188167, at *4.
In this case, the duty giving rise to Plaintiffs’ claim stems from a settlement agreement, not
the law of any state. By its terms then, Section 1681t(b)(1)(F) does not apply. “While state law
may provide the remedy for breach of an express contract, the predicate duty is independently
undertaken by the parties themselves.” Id. at *5. The Supreme Court has recognized this important
distinction in interpreting a similar preemption provision in Cipollone v. Liggett Group, Inc., 505
U.S. 504, 515 (1992). Reasoning that because a manufacturer’s liability for breach of warranty
claim derives from the terms of the warranty, “the requirements imposed by an express warranty
claim are not ‘imposed under State law,’ but rather imposed by the warrantor.” Cipollone, 505
U.S. at 525 (emphasis in original). Similarly here, although the parties’ settlement agreement is
enforceable under state law, its obligations are not imposed by the State. See id., 505 U.S. at 526.
“[A] common-law remedy for a contractual commitment voluntarily undertaken should not be
regarded as a ‘requirement . . . imposed under State law within the meaning of [the statute].” Id.
(emphasis in original); accord Causay, 2016 WL 7188167, at *5. Accordingly, FCRA preemption
does not apply.
Nor does BANA’s contention that credit reporting activities are exempt from the nondisparagement provision defeat Plaintiffs’ claim. The exception provides, “Nothing in this
Agreement shall, however, be deemed to interfere with each party’s obligation to report
transactions with appropriate governmental, taxing and/or reporting agencies.” [Dkt 18 ¶ 1(E).]
Because Plaintiffs’ claim is based on credit reporting, BANA says, the exception bars it. Any
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other interpretation, it adds, would contravene the public policy surrounding consumer reporting.
According to Plaintiffs, however, because their claim is based on BANA’s false and injurious
statements and not the mere act of reporting, it neither affects BANA’s reporting obligations nor
offends any public policy.
This Court agrees with Plaintiffs. Plaintiffs’ claim does not interfere with BANA’s
obligation to provide information to credit reporting agencies. Neither the language of the
exception nor the public policy fostering credit reporting insist that BANA may make the false
statements Plaintiffs complain of with impunity.
Accordingly, the motion to dismiss is denied as the breach of contract claim.
Sanctions Claims
Plaintiffs bring two sanctions claims against BANA, one for violating the Chapter 11 plans
of reorganization and one for violating the Bankruptcy Court’s 2013 order that confirmed them.
BANA moves to dismiss both counts, arguing at the threshold that they duplicate each other, and
that in any event, a claim for sanctions is not properly brought as an independent cause of action
nor is there any private cause of action for violating a confirmed plan or corresponding
confirmation order. In opposition, Plaintiffs emphasize the Bankruptcy Court’s waning
jurisdiction following confirmation of a reorganization plan as well as its limited involvement in
the determination of the plans here. According to Plaintiffs, since the Bankruptcy Court is a unit
of the District Court, and the plans may be interpreted as any other contract, their claims are
appropriately raised in this court.
Plaintiffs’ request for sanctions is based on an alleged act of civil contempt. See In re Pigg,
No. 05-43560, 2011 WL 3840838, at *3 (Bankr. S.D. Ill. Aug. 29, 2011) (“Civil contempt is
triggered when a party violates a court order.”) (citing In re Consol. Indus., 360 F.3d 712, 716 (7th
Cir. 2004); Cox v. Zale Delaware, Inc., 239 F.3d 910, 916 (7th Cir.2001)); see also In re Dendy,
396 B.R. 171, 179 (Bankr. D.S.C. 2008) (“A violation of the confirmation order is an act of
contempt.”). It is well settled in the Seventh Circuit that “there is no such thing as an independent
cause of action for civil contempt.” D. Patrick, Inc. v. Ford Motor Co., 8 F.3d 455, 459 (7th Cir.
1993) (internal quotation omitted); accord In re Consol. Indus., 360 F.3d at 716 (“[C]ivil contempt
is a method of enforcing a court order, not an independent cause of action.”). Instead, “civil
contempt proceedings are considered to be part of the action from which they stem.” D. Patrick,
Inc., 8 F.3d at 459 (quotation omitted).
The Seventh Circuit has instructed that “[t]he proper vehicle to enforce a court order is a
motion in the original case.” In re Consol. Indus., 360 F.3d at 716. Notably, a motion to enforce
was the precise vehicle Long previously utilized in a post-confirmation dispute with BANA and
certain other creditors. See In re Castle Home Builders, Inc., 520 B.R. 98 (Bankr. N.D. Ill. 2014).
Relying on 11 U.S.C. § 105(a), the Bankruptcy Court in that action readily found the authority to
ensure compliance with the terms of its order. Id. at 100, 106; see also Matter of Volpert, 110 F.3d
494, 501 (7th Cir. 1997) (“[T]he plain language of § 105 furnishes the bankruptcy courts with
ample authority to sanction conduct that abuses the judicial process.”).
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Plaintiffs contend, however, that the Bankruptcy Court may not have subject-matter
jurisdiction over their request for sanctions because of its diminished authority following plan
confirmation. It is well settled in the Seventh Circuit that the Bankruptcy Court’s “jurisdiction
includes the power to adjudicate proceedings ‘arising in,’ ‘arising under,’ or ‘related to’ a case
under Title 11.” In re FedPak Systems, Inc., 80 F.3d 207, 213 (7th Cir. 1996). As Plaintiffs note,
the Seventh Circuit has interpreted “related to” jurisdiction to cover that which would affect the
amount of property available to creditors. See id. Notably, the Bankruptcy Court has previously
ruled in the context of the plans at issue here that it retained jurisdiction to protect the confirmation
order, prevent interference with the execution of the plan, and otherwise aid in the plan’s operation.
See In re Castle Home Builders, 520 B.R. at 101. Accordingly, Plaintiffs’ concerns do not appear
well founded. In any event, the claims are dismissed here and the issue is to be decided by the
Bankruptcy Court.
Plaintiffs’ sanctions claim for violation of the plans of reorganization is dismissed for the
additional reason that Section 1141 does not provide a private cause of action. Section 1141(a) of
the Bankruptcy Code provides in relevant part: “the provisions of a confirmed plan bind . . . any
creditor, whether or not the claim or interest of such creditor . . . is impaired under the plan and
whether or not such creditor . . . has accepted the plan.” 11 U.S.C. § 1141(a). Section 1141(b)
adds that “after confirmation of a plan, the property dealt with by the plan is free and clear of all
claims and interests of creditors.” Id. § 1141(b). Unlike other provisions of the Code, Section
1141 does not expressly provide a private cause of action. Compare 11 U.S.C. § 1141 with 11
U.S.C. § 362(k) (providing “an individual injured by any willful violation” of an automatic stay
the right to seek damages).
Plaintiffs do not argue Section 1141 contains an implied cause of action, and they failed to
respond to BANA’s argument that no such cause of action exists. Further, to the extent that
Plaintiffs rely on Section 105 for an implied cause of action, courts in this district repeatedly hold
it does not provide one. See, e.g., In re Knox, 237 B.R. 687, 700 (Bankr. N.D. Ill. 1999) (applying
four-part Cort test to determine there is no implied private right of action under § 105); Holloway
v. Household Auto. Fin. Corp., 227 B.R. 501, 505 (N.D. Ill. 1998) (“Congress lacked the requisite
intent necessary to imply a private right of action” in § 105.); see also In re Kmart Corp., No. 02
B 02474, 2006 WL 952042, at *13-16 (Bankr. N.D. Ill. Apr. 11, 2006) (collecting appellate cases
that conclude section 105 does not provide a private cause of action).
For these reasons, the sanctions claims are dismissed without prejudice.
Declaratory Judgment
Finally, BANA moves to dismiss Plaintiffs’ declaratory judgment count as duplicative of
the substantive action and failing to add any substance to the case. Specifically, Plaintiffs seek a
declaration that the BANA’s alleged false reports are “in violation of the law and the Settlement
Agreement. [Dkt 1 ¶ 84.] According to Plaintiffs, the declaratory judgment count is distinct from
the breach of contract claim because it seeks a forward-looking damage remedy, unavailable under
a breach of contract claim.
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A district court has “discretion to decline to hear a declaratory judgment action even if it
considers the action justiciable.” Cohn v. Guaranteed Rate Inc., 130 F. Supp. 3d 1198, 1205 (N.D.
Ill. 2015) (citing Tempco Elec. Heater Corp. v. Omega Eng’g, Inc., 819 F.2d 746, 747 (7th Cir.
1987)). “Where the substantive suit would resolve the issues raised by the declaratory judgment
action, the declaratory judgment action serve[s] no useful purpose because the controversy has
ripened and the uncertainty and anticipation of litigation are alleviated.” Amari v. Radio Spirits,
Inc., 219 F. Supp. 2d 942 (N.D. Ill. 2002) (citing Tempco, 819 F.2d at 749) (internal quotation
marks omitted). Courts in this district “routinely dismiss declaratory judgment claims as
duplicative of substantive claims even when the relief requested may differ.” Cohn, 130 F. Supp.
3d at 1206 (collecting cases).
Plaintiffs’ argument notwithstanding, the focus of the Court’s analysis “is not on the relief
requested, but whether the substantive issues that must be decided by the Court are duplicative.”
Id. Because Plaintiffs’ declaratory judgment count raises no issue not otherwise addressed in the
substantive action, it serves no useful purpose. Accordingly, it is dismissed with prejudice.
CONCLUSION
For all of the reasons discussed above, Defendant Bank of America, N.A.’s Motion to
Dismiss [15] is granted in part and denied in part. Plaintiffs are given until December 12, 2018 to
file an amended complaint consistent with this order.

Date: 11/7/2018

Jorge L. Alonso
United States District Judge

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