Desai v. Hanmi Bank, No. 1803621, 2018 WL 5264223 (E.D. Ill. Oct. 23, 2018)
In a suit regarding a bank’s potential breach of loan documents, breach of good faith and fair dealing, and failure to fulfill duties of a receiver, the US District Court, Northern District of Illinois (the “Court”) dismissed the claims by granting the defendant bank’s Federal Rules of Civil Procedure 12(b)(6) motion. The Court found that a plaintiff must plead all claims in a state-court action, or risk losing them, as res judicata bars the use of the same operative facts leading to further litigation.
In April 2003, Navin Desai (“Desai”), who served as manager and member of 1050 Sibley Blvd. LLC (“1050 Sibley”), guaranteed a loan from Mutual Bank to 1050 Sibley. The loan was secured by a retail strip mall with twelve tenant spaces that was owned by 1050 Sibley. In April 2008, 1050 Sibley and Mutual Bank modified the loan and a new promissory note executed, with Desai remaining the guarantor. On July 31, 2009, Mutual Bank was closed by the Illinois Department of Financial Professional Regulation. That same day, United Central Bank (“UCB”) purchased all of Mutual Bank’s assets. Earlier that month, 1050 Sibley ceased making payments on its loan, leading to foreclosure proceedings against 1050 Sibley, Desai, and other guarantors on the loan. At that point, UCB claimed that 1050 Sibley’s outstanding balance on the loan was $711,056.86.
During the ongoing foreclosure proceedings, 1050 Sibley and its guarantors attempted a short sale of the property in exchange for UCB releasing its claim and lien on the property. However, UCB rejected the sale price of $600,000 and subsequently filed a motion for default and foreclosure on the property, as well as a motion to appoint a receiver, Collateral Trustee Inc., to manage the property and collect rent. The Court approved the receiver, at which point the property generated approximately $9,275 per month in rent, though that number decreased over the next several months. Desai and other guarantors continued to push a short sale, but it fell through as tenants failed to make rent payments or vacated the property with no actions on behalf of the receiver. In August 2014, Hanmi Bank (“Hamni”) purchased UCB, making it the successor in interest on the loan. In March 2015, the receiver noted that all six tenants had defaulted on their rental obligations. The next month, Hanmi rejected a short sale offer for the property and obtained a judgment for $1,658,782, before auctioning off the property for $245,000. The court entered a deficiency judgment against 1050 Sibley, Desai, and other guarantors for the balance of $1,435,457.17, and relieved the receiver of its duties.
Desai filed suit against Hanmi, stating that it had breached the loan when it took over as successor through its failure to properly oversee the property prior to its sale. Desai also claimed that Hanmi breached the covenant of good faith and fair dealing when it rejected the numerous short sale offers that were made, in its failure to require the receiver to collect rent in a proper fashion, and in failing to maintain and make necessary repairs to the property, unjustly decreasing its ability to be sold. Hanmi moved to dismiss the complaint pursuant to FRCP Rule 12(b)(6), arguing that res judicata barred Desai from asserting these claims. Res judicata is an affirmative defense, and a court may consider it in three scenarios:
1) The state court rendered final judgment on the merits
2) The identities of the parties are the same in the foregoing proceeding as in the state-court suit
3) The claims in this suit and the state court proceeding are the same
Neither party contested either of the first two elements, and the Court was left to determine whether the claims in this action arose from the same operative facts as in the state-court suit by employing a transactional test. Desai contested that the claims in this suit were not fully available at the time of the state court proceedings because foreclosure proceedings were ongoing. Alternatively, Desai argued that res judicata didn’t apply to him individually as the guarantor, but only to 1050 Sibley. The Court found neither argument persuasive, and Hanmi obtained a judgment against both 1050 Sibley and Desai, with the Court emphasizing that Desai should have plead these claims in state court. Since he failed to do so, and because these claims arose from the same operative facts, res judicata barred Desai from bringing an action based on these claims. The Court granted Hanmi’s 12(b)(6) motion to dismiss and dismissed Desai’s claim with prejudice.
Article courtesy of Michael Robson of Greenberg Traurig, LLP.