Deutsche Bank Nat'l Trust Co. v. Bodzianowski

• Decision Date: 09 September 2016
• Docket Number: No. 3–15–0632.,3–15–0632.
• Citation: 407 Ill.Dec. 898,64 N.E.3d 697
• Parties: DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee of Novastar Mortgage Funding Trust, Series 2006–5 Novastar Home Equity Loan Asset–Backed Certificates, Series 2006–5, Plaintiff–Appellant, v. Howard J. BODZIANOWSKI; Kristen M. Bodzianowski; Heritage Lakes Estates Homeowners Association; Unknown Owners and Nonrecord Claimants, Defendants–Appellees.
• Court: United States Appellate Court of Illinois

64 N.E.3d 697

407 Ill.Dec. 898

DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee of Novastar Mortgage Funding Trust, Series 2006–5 Novastar Home Equity Loan Asset–Backed Certificates, Series 2006–5, Plaintiff–Appellant,

v.Howard J. BODZIANOWSKI; Kristen M. Bodzianowski; Heritage Lakes Estates Homeowners Association; Unknown Owners and Nonrecord Claimants, Defendants–Appellees.

No. 3–15–0632.

Appellate Court of Illinois, Third District.

Sept. 9, 2016.

Al Schwartz and Justin F. Carter (argued), both of Morris, Laing, Evans, Brock & Kennedy, Chtrd., of Chicago, for appellant.

Theodore A. Woerthwein, John L. Miller, Ashley Hanlon, and Matthew H. Hector (argued), all of Woerthwein & Miller, of Chicago, for appellees.

OPINION

Justice WRIGHT delivered the judgment of the court, with opinion.

¶ 1 In 2011, Deutsche Bank National Trust Company (Deutsche Bank), acting as trustee for the NovaStar Mortgage Funding Trust, Series 2006–5 (Trust), filed a foreclosure action in the United States District Court for the Northern District of Illinois against the Bodzianowskis (borrowers). In federal court, the borrowers filed a motion to dismiss the federal foreclosure action on the grounds that the mortgage was not properly assigned to the Trust by the "Depositor" as required by the governing Pooling and Servicing Agreement (PSA). As a consequence of a void transfer to the Trust, the borrowers argued Deutsche Bank could not pursue foreclosure on behalf of the Trust. In federal court, Deutsche Bank resisted the borrowers' motion to dismiss the federal foreclosure action by claiming the borrowers lacked standing to contest a voidable transfer into the Trust because the borrowers were nonparties to the PSA.

¶ 2 After considering the dueling standing arguments raised by each party, the federal court found the arguments presented in the borrowers' reply brief, asserting Deutsche Bank lacked standing to foreclose on a debt arising out of a transfer to the Trust deemed as void by a New York state statute, were compelling. As a result, the federal district court dismissed the federal foreclosure action initiated by Deutsche Bank as trustee with prejudice. Deutsche Bank did not appeal the dismissal.

¶ 3 Years later, in 2014, Deutsche Bank initiated a second foreclosure action against the same borrowers, alleging the same date of default, in Illinois state court. The circuit court applied res judicata and granted borrowers' motion to dismiss pursuant to section 2–619 of the Code of Civil Procedure (735 ILCS 5/2–619(a)(4) (West 2014)). We affirm.

¶ 4 BACKGROUND

¶ 5 On September 25, 2006, the borrowers acquired a $165,000 mortgage loan from Novastar Mortgage, Inc. (original lender) for the purchase price of a home located at 3314 Concord Court, Lockport, IL. The original lender in this case entered into a PSA, dated September 1, 2006, with three other entities to create a common-law trust known as "NovaStar Mortgage Funding Trust, Series 2006–5" (Trust). The PSA designated the original lender to be the "Sponsor" and "Servicer" and Novastar Mortgage Funding Corporation as the "Depositor" for purposes of the resulting Trust. The PSA also designated U.S. Bank National Association to serve as "Custodian" and Deutsche Bank to act as "Trustee." The PSA mandated that the Trust would accept mortgage documents endorsed by the "Depositor." According to the PSA, the Trust would be governed by the laws of the State of New York.

¶ 6 The borrowers defaulted on their mortgage loan in February 2010. On May 6, 2010, Mortgage Electronic Registration Systems, Inc. (MERS), acting as nominee for the original lender, assigned the mortgage to the Trust in a document titled "ASSIGNMENT OF MORTGAGE ILLINOIS." The 2010 assignment by MERS transferred the original lender's interest in the mortgage to "DEUTSCHE BANK NATIONAL TRUST COMPANY AS TRUSTEE NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2006–5 NOVASTAR HOME EQUITY LOAN ASSET–BACKED CERTIFICATES, SERIES 2006–5."

¶ 7 I. 2011 Federal Court Proceeding

¶ 8 On March 21, 2011, Deutsche Bank, acting as trustee for the Trust, filed a federal complaint for foreclosure in the United States District Court for the Northern District of Illinois. Deutsche Bank sought to enforce the borrowers' loan agreement and foreclose on the mortgage. The borrowers filed a motion to dismiss the federal foreclosure complaint on the grounds that Novastar Mortgage Funding Corporation, the "Depositor," was not the entity that endorsed the mortgage documents deposited into the Trust as required by Section 2.01 of the Trust's PSA. Therefore, the borrowers argued Deutsche Bank, acting as trustee for the Trust, improperly accepted the mortgage documents on behalf of the Trust and lacked standing to initiate the federal foreclosure action. Citing to the applicable statutes governing the Trust according to New York law, the borrowers asserted that since "the transfer did not take place according to the Trust's own terms, the transfer is void."¹

¶ 9 After the parties briefed the standing issue raised in the borrowers' motion to dismiss the federal action, both counsel for Deutsche Bank and the federal district judge found the borrowers' arguments set forth in the borrowers' reply were "compelling." Specifically, the federal district court stated "the [borrowers'] reply brief argues that the instruments at issue in this case are not sufficient under New York law. And I am not sure that that argument was squarely addressed by [Deutsche Bank]." On October 11, 2011, the court granted the borrowers' motion to dismiss Deutsche Bank's federal foreclosure complaint with prejudice. Deutsche Bank did not appeal or move to vacate the federal district court's 2011 dismissal.

¶ 10 II. 2014 Illinois State Court Proceedings

¶ 11 On October 23, 2014, Deutsche Bank filed another foreclosure complaint against the same parties in the circuit court of Will County, Illinois. Again, Deutsche Bank, acting as trustee, sought to foreclose on the same mortgage assigned to the Trust in 2010 for the property located at 3314 Concord Court, Lockport, IL.

¶ 12 On March 6, 2015, the borrowers filed a motion to dismiss the state court action pursuant to section 2–619 of the Code of Civil Procedure (735 ILCS 5/2–619(a)(4) (West 2014)) on the grounds that res judicata applied based on the resolutions of the same issues between the same parties in federal court.

¶ 13 In state court, Deutsche Bank resisted the borrowers' motion to dismiss by claiming new Illinois precedent now provided that the borrowers would not have standing to contest a violation of the PSA governing a particular trust. Specifically, Deutsche Bank asserted that the Second District's decision in Bank of America National Ass'n. v. Bassman FBT, L.L.C., 2012 IL App (2d) 110729, 366 Ill.Dec. 936, 981 N.E.2d 1 changed the applicable law concerning the borrowers' ability to challenge Deutsche Bank's standing to bring a foreclosure action. Deutsche Bank argued that Bassman was a case of first impression holding that borrowers could not "challenge the validity of the transfers of their Note and Mortgage based on non-compliance with the trust agreements."

¶ 14 After the parties' briefings, on August 10, 2015, the circuit court of Will County granted the borrowers' section 2–619 motion to dismiss after finding res judicata applied in the case at bar. On September 8, 2015, Deutsche Bank filed a timely notice of appeal.

¶ 15 ANALYSIS

¶ 16 The case law provides that a trial court's decision granting a section 2–619 motion to dismiss is reviewed de novo on appeal to this court. Landheer v. Landheer, 383 Ill.App.3d 317, 320, 322 Ill.Dec. 684, 891 N.E.2d 975 (2008) (citing Van Meter v. Darien Park District, 207 Ill.2d 359, 368, 278 Ill.Dec. 555, 799 N.E.2d 273 (2003) ). In our review, we "must construe all of the pleadings and supporting documents in the light most favorable to the nonmoving party." Id. (citing Van Meter, 207 Ill.2d at 367–68, 278 Ill.Dec. 555, 799 N.E.2d 273 ). The basis of the motion, section 2–619(a)(4) of the Code of Civil Procedure (735 ILCS 5/2–619(a)(4) (West 2014)), provides that an action may be dismissed if the cause of action is barred by a prior judgment. Similarly, an action may be dismissed under the doctrine of res judicata when the claim is barred by a prior judgment. Papers Unlimited v. Park, 253 Ill.App.3d 150, 153, 192 Ill.Dec. 413, 625 N.E.2d 373 (1993).

¶ 17 The parties agree that the party invoking a defense to an action based on res judicata bears the burden of demonstrating the doctrine applies. Oshana v. FCL Builders, Inc., 2013 IL App (1st) 120851, ¶ 15, 373 Ill.Dec. 592, 994 N.E.2d 77 (citing Cload v. West, 328 Ill.App.3d 946, 950, 263 Ill.Dec. 35, 767 N.E.2d 486 (2002) ). It is well established that the doctrine of res judicata involves three requirements. Currie v. Wisconsin Central, Ltd., 2011 IL App (1st) 103095, ¶ 28, 356 Ill.Dec. 200, 961 N.E.2d 296 (citing Rein v. David A. Noyes & Co., 172 Ill.2d 325, 335, 216 Ill.Dec. 642, 665 N.E.2d 1199 (1996) ). First, there must be a prior and final judgment on the merits entered by a court of competent jurisdiction. Id. Second, there must be an identity of the causes of action in both cases. Id. Third, there must be an identity of parties or their privies in both cases. Id. Functionally, "[r]es judicata bars a second adjudication of the parties' disputes where there has been or could have been a former adjudication on the merits, and there is an identity of cause of action and parties or their privies in the two lawsuits." (Emphasis added.) Lehman v. Continental Health Care, Ltd., 240 Ill.App.3d 795, 801, 181 Ill.Dec. 230, 608 N.E.2d 303 (1992) (citing Simcox v. Simcox, 131 Ill.2d 491, 497, 137 Ill.Dec. 664, 546 N.E.2d 609 (1989) ). In other words, res judicata will bar a second action when the second action is "nothing more than a do-over of the first action." See Turczak v. First American Bank, 2013 IL App (1st) 121964, ¶ 28, 375 Ill.Dec. 685, 997 N.E.2d 996 (...