Baek v. Clausen, 16-3838
| Decision Date | 02 April 2018 |
| Docket Number | No. 16-3838,16-3838 |
| Citation | 886 F.3d 652 |
| Parties | Heung K. BAEK, et al., Plaintiffs-Appellants, v. Patricia A. CLAUSEN, et al., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
William R. Knox, Attorney, LAW OFFICES OF WILLIAM R. KNOX, Chicago, IL, for Plaintiffs-Appellants.
Jamie Lee Ross, Attorney, KALCHEIM HABER, LLP, Chicago, IL, for Defendant-Appellee NORTHSIDE COMMUNITY BANK.
Before Ripple, Sykes, and Hamilton, Circuit Judges.
Clark & Leland Condominiums, LLC ("C & L"), and its shareholders, Heung Baek and Hyun Baek-Lee (collectively "the Baeks"), brought this action against Northside Community Bank ("NCB") and several of its employees, alleging violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1964(c). The predicate acts set forth in the complaint focus on the allegedly fraudulent and abusive acts committed by NCB in the course of a lending relationship with the plaintiffs.
This RICO action is the last in a series of legal actions between the parties: the first, a foreclosure action ("Foreclosure Action"), was brought by NCB in state court in 2010; the second, an action on the loan guaranty ("Guaranty Action"), followed in 2012; and, finally, a fraud and breach of contract action ("Parallel Action"), was brought by Mr. Baek and Ms. Baek-Lee in 2014. The latter two actions were consolidated in the Circuit Court of Cook County.
In response to the RICO complaint, NCB initially moved to dismiss, or in the alternative, to stay the proceeding under Colorado River Water Conservation District v. United States , 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). After the state court struck or dismissed all of the plaintiffs' claims and granted summary judgment to NCB on its claims, NCB amended its motion to assert an alternative ground for dismissal: res judicata. The district court granted NCB's amended motion.
On reconsideration, the district court vacated its earlier dismissal because it is not clear under Illinois law whether an adjudication is final for purposes of res judicata if an appeal is pending. The district court therefore stayed the action pending the disposition of the plaintiffs' appeal in state court. After the state appellate court affirmed the judgment in favor of NCB, the district court reinstated its dismissal with prejudice.
We now affirm. The district court correctly determined that res judicata precludes the plaintiffs' present action. There has been a final judgment on the merits, the same parties are litigating here as in state court, and the claims arise from a single group of operative facts. Moreover, given the nature and extent of litigation that had taken place in the state court, we perceive no abuse of discretion in the district court's decision to stay the RICO action under Colorado River .1
The facts, as set forth in the plaintiffs' complaint, allege the following events.2 The Baeks came to the United States from Korea in 1999. Mr. Baek desired to develop real estate and, to this end, purchased property through his limited liability company, C & L.3 The property was financed by Labe Bank, and Bill Frank was the loan officer who serviced the loan. Frank later moved to NCB and asked Mr. Baek to switch his business to NCB. Frank represented that NCB would provide Mr. Baek a larger construction loan at a lower rate than Labe Bank had provided. In July 2006, Mr. Baek entered a construction loan with NCB for approximately $11,750,000.
Mr. Baek executed a construction loan agreement, construction mortgage, promissory note, and commercial guaranty. NCB had not indicated that it would require Ms. Baek-Lee to sign a guaranty; however, at closing NCB presented a guaranty document which had lines for both of their signatures. Ms. Baek-Lee did not sign the guaranty at closing. She does not recall ever signing a commercial guaranty; nevertheless NCB maintains that, in January 2008, eighteen months after closing, she did sign a guaranty.
NCB, C & L, and Mr. Baek then entered into several loan modification agreements. One of those loan modification agreements bears Ms. Baek-Lee's signature. Ms. Baek-Lee contends that her signature was forged and, in support, notes that her passport reflects that she was out of the country on the date the document purportedly was signed.
The relationship between Mr. Baek and NCB was rocky almost from the outset. In July 2007, NCB demanded that Mr. Baek deposit more money in the construction loan account because the loan was "out of balance";4 although Mr. Baek disagreed with this assessment, he nevertheless complied with this request. NCB then began to demand additional collateral, including the title to Mr. Baek's home. Even when Mr. Baek acquiesced, however, NCB refused to disburse funds to C & L's contractors. NCB also required Mr. Baek to sell other real estate and to give up control of the construction operating account. Although NCB would not release funds to Mr. Baek or to C & L, NCB did withdraw its attorney's fees from the account.5 As a result of these withdrawals, at least one of C & L's checks was returned for insufficient funds.
According to the Baeks' federal complaint, NCB also frustrated Mr. Baek's efforts to comply with its demands. For instance, it required the Baeks to provide their 2009 income tax returns, but refused to release statements concerning the operating account which were necessary for the Baeks to complete those returns.
On October 15, 2010, NCB issued a default letter. Mr. Baek then put a stop payment on his monthly payment to NCB, which prompted NCB to institute foreclosure proceedings against C & L.
On October 26, 2010, NCB filed the Foreclosure Action against C & L in state court. Just a few days later, NCB filed the Guaranty Action in the Circuit Court of Cook County against the Baeks as guarantors on the loan. The Baeks filed several affirmative defenses and a counterclaim.
On January 29, 2012, while the Guaranty Action was pending, the Baeks and Soo Corporation d/b/a Blue Ocean Contemporary Sushi6 filed the Parallel Action against NCB and its vice-president, William Kivit. The plaintiffs alleged seven claims against NCB and Mr. Kivit related to the construction loan: bad faith breach of contract, breach of fiduciary duty, constructive trust, fraud, accounting, implied contract/unjust enrichment, and emotional distress. This Parallel Action was consolidated with the Guaranty Action.
On February 7, 2012, the Circuit Court of Cook County entered a judgment of foreclosure and sale of the property at issue. The property was sold on October 9, 2012, and a deficiency judgment was entered against C & L for $2,863,489. C & L moved for reconsideration on numerous grounds, including that NCB committed notary fraud; NCB was prohibited from filing the foreclosure action; NCB's enforcement of the loan documents constituted extortion, fraud, misrepresentation, and violated RICO; and NCB took advantage of non-English speakers. C & L's motion was denied.
Also in October 2012, NCB filed motions to strike and to dismiss the Baeks' affirmative defenses and counterclaims in the Guaranty Action and to dismiss the Parallel Action. With respect to the affirmative defenses, NCB argued that many of the defenses—including unjust enrichment, fraud in the inception, and failure to perform—were legally flawed. NCB also argued that, to the extent there was any merit to the affirmative defenses, only C & L, not the Baeks, had standing to assert them. NCB further maintained that any defenses in favor of C & L were barred by res judicata and collateral estoppel based on the judgment in the Foreclosure Action. NCB made similar arguments with respect to the Baeks' counterclaims and to the claims raised by the Baeks and Soo Corporation in the Parallel Action.
On November 28, 2012, C & L, the Baeks, and Soo Corporation moved to amend their complaint in the Parallel Action to include, among other new allegations, a RICO claim. The RICO claim alleged racketeering activity by means of extortionate collections, fraudulent notarial acts, and bank fraud. It named as defendants Mr. Kivit, Patricia Clausen, Belinda Baier, Tasha Spencer7 and John Does.
On May 30, 2013, the Circuit Court granted NCB's motion to strike and to dismiss the Baeks' affirmative defenses and counterclaims in the Guaranty Action. It also granted NCB's motion to dismiss Counts I through VII of the complaint in the Parallel Action. The court gave the Baeks and Soo Corporation leave to replead Counts VIII through XI—their proposed amendments in the Parallel Action—within twenty-eight days. The Baeks and Soo Corporation did not file an amended complaint within the time allowed by the Circuit Court.
On August 19, 2013, NCB moved for summary judgment on the merits of the Guaranty Action. On April 24, 2014, ten months after the deadline for filing an amended complaint, the Baeks filed a motion asking the Circuit Court to reconsider its May 30, 2013 order dismissing their affirmative defenses, counterclaims, and Counts I through VII of the Parallel Action; they also requested leave to file an amended complaint, including a new RICO claim. The new RICO claim differed from the one in their November 28, 2012 proposed amended complaint, but mirrors the present federal RICO action.8
On September 11, 2014, the Circuit Court denied the Baeks' motion to reconsider and for leave to file an amended complaint. It also granted NCB's motion for summary judgment in the Guaranty Action, which rendered the Baeks jointly and severally liable for $2,359,743.55.
On October 10, 2014, the Baeks and Soo Corporation filed a post-judgment motion to vacate the Circuit Court's summary judgment ruling and for leave to file amended defenses and counterclaims. The court denied those motions on October 30, 2014. The Baeks then appealed the judgment in the Guaranty Action and the dismissal of their...
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