Saxon Mortg., Inc. v. UNITED FINANCIAL MORTG., CORP.

• Decision Date: 24 March 2000
• Docket Number: No. 1-99-2577.,1-99-2577.
• Citation: 728 N.E.2d 537,312 Ill. App.3d 1098,245 Ill.Dec. 455
• Parties: SAXON MORTGAGE, INC., Plaintiff-Appellant, v. UNITED FINANCIAL MORTGAGE CORPORATION, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

728 N.E.2d 537

312 Ill. App.3d 1098

245 Ill.Dec. 455

SAXON MORTGAGE, INC., Plaintiff-Appellant, v. UNITED FINANCIAL MORTGAGE CORPORATION, Defendant-Appellee.

No. 1-99-2577.

Appellate Court of Illinois, First District, Fifth Division.

March 24, 2000.

Peter R. Sonderby, P.C., Chicago (Peter R. Sonderby, of counsel), for Appellant.

Gomberg, Kane & Fischer, Ltd., Chicago (Ronald P. Kane and Michael A. Kraft, of counsel), for Appellee.

Justice HARTMAN delivered the opinion of the court:

Plaintiff Saxon Mortgage, Inc. (Saxon), appeals from the circuit court's order granting defendant United Financial Mortgage, Corporation's (UFM) motion to dismiss, under section 2-619 of the Code of Civil Procedure (Code) (735 ILCS 5/2-619 (West 1998)), and dismissing with prejudice Saxon's breach of contract complaint against UFM, based upon the doctrine of res judicata. All questions on appeal emanate from the pleadings, motions and responses, and supporting materials.

Saxon questions whether the circuit court erred in (1) dismissing Saxon's state court action based upon res judicata; (2) failing to recognize certain exceptions to res judicata as applied to the present facts; and (3) failing to find disputed factual issues surrounding the application of res judicata, requiring denial of UFM's section 2-619 motion to dismiss.

On December 14, 1998, Saxon filed a complaint for breach of contract against UFM in the circuit court of Cook County (state action), which is the subject of this appeal, from which the following facts are derived.

Saxon, a Virginia corporation, is engaged in the business of purchasing and securitizing¹ residential mortgage loans. UFM, an Illinois corporation, is engaged in the business of originating, selling and servicing residential mortgage loans.

On February 28, 1994, UFM and Saxon's predecessor in interest, Saxon Mortgage Funding Corporation (collectively Saxon), entered into a sales and servicing agreement (Agreement), pursuant to which Saxon agreed to purchase mortgages from UFM on the terms and conditions set forth in the Agreement and in Saxon's Seller/Servicer Guide (Guide), which was specifically incorporated into the Agreement.

Section 550 of the Guide provides that if a mortgage loan purchased by Saxon from UFM is prepaid in full within the first 180 days following the purchase, UFM must reimburse Saxon for the premium paid for that mortgage loan.

Between October 1996 and April 1998, eight of the mortgage loans purchased by Saxon from UFM were paid off within 180 days, allegedly entitling Saxon to a return of premiums in the amount of $70,455.77, pursuant to the Agreement and section 550 of the Guide. Attached to Saxon's complaint are the Agreement, section 550 of the Guide, a schedule of the specific mortgage loans involved and sections 180 (representations and warranties) and 190 (indemnification) of the Guide.² UFM is alleged by Saxon to have refused unreasonably and vexatiously to repay Saxon, despite Saxon's demands, and is in breach of the Agreement and Guide, entitling Saxon to prejudgment interest, attorney fees, and other costs, fees and expenses incurred.

Saxon alleged further that on about May 1, 1997, it had filed suit against UFM in the United States District Court for the Northern District of Illinois, Case No. 97-CV-3257 (federal action). The seven-count federal complaint, contained in the record on appeal in this case, involved a delinquent loan, identified as the "Stulka" loan. Saxon there alleged breach of contract, breach of implied covenant of good faith and fair dealing, breach of express warranty, express indemnification, intentional misrepresentation, and negligent misrepresentation, and sought damages based on section 400 of the same contract involved in the state court action. The federal action dealt with the investment quality of the loans sold by UFM to Saxon, rather than early mortgage redemption under section 550, the subject matter of the state court action. Attached to the federal complaint, also as exhibits, were the aforementioned Agreement and Guide.³

The federal complaint further alleged that prior to its filing of the federal court action, Saxon demanded that UFM repurchase the Stulka loan, which it had purchased from UFM on about March 28, 1995, under the terms and conditions set forth in the Agreement and Guide, or indemnify Saxon against its losses. In addition to seeking damages in the amount of $118,196.27, which represented the losses claimed by Saxon as a result of UFM's breach of its obligations in connection with the Stulka loan and the resultant default on that loan, Saxon also prayed for prejudgment interest, attorney fees and costs.

On about October 14, 1998, the district court entered summary judgment in favor of Saxon and against UFM in the amount of $122,858.70 in the federal action.

In a letter from Saxon to UFM dated July 11, 1997, contained in the record on appeal, Saxon set forth the list of loans that were paid off early (footnote 2), and reasserted its demand for reimbursement under the Agreement and Guide, having a total due of $67,815.76. Saxon requested payment by July 31, 1997. The letter further indicated that although some discussions were held about the possibility of mitigating the amounts owed, no arrangement materialized. Subsequent letters between the parties followed. For example, in a letter from Saxon to UFM dated September 8, 1997, also contained in the record, Saxon outlines an agreement between the parties regarding the repayment of these sums in which UFM is alleged to have agreed to attempt to reduce its indebtedness to Saxon based on future loans sales between the parties. UFM wrote Saxon on November 25, 1997, that, although it could not fulfill "perimeters [sic] they spoke about," Saxon was requested to call "so we can come up with a better solution." Almost one year later, after a continuing series of letters, UFM wrote Saxon, on September 3, 1998, in part: "Please note that UFMC has every intention to consummate its obligation given it is provided with competitive lending practices. Thus, please give us a call upon receipt of this letter so that we can implement any suggested resolution." Saxon's federal court motion for summary judgment in the factually divergent Stulka loan case by that time was awaiting decision, ultimately to be denied several weeks later.

On February 19, 1999, UFM filed a section 2-619 motion to dismiss Saxon's state court action, based on the doctrine of res judicata and the rule against claim splitting, with the federal court's order of summary judgment entered on October 14, 1998, cited as the basis for the motion.

On June 23, 1999, following consideration of the parties' briefs, submission of evidence in connection with the motion, and oral argument, the circuit court granted UFM's section 2-619 motion and dismissed Saxon's state complaint, in its entirety, with prejudice, concluding that the underlying action was barred under the doctrine of res judicata.

I

Saxon first contends that the circuit court erred when it granted UFM's section 2-619 motion to dismiss, based on the doctrine of res judicata, because the requirements for application of the doctrine were not met. Saxon argues that the claims at issue in this case and those at issue in the federal suit are not the same cause of action for res judicata purposes, because they arose out of disparate cores of operative facts. Rather, Saxon urges, comparison of the complaints reveals that there is almost no overlap with respect to the essential facts that give rise to its right to relief in the two cases.

Under the "transactional analysis" adopted by our supreme court in River Park, Inc. v. City of Highland Park, 184 Ill.2d 290, 234 Ill.Dec. 783, 703 N.E.2d 883 (1998) (River Park), Saxon maintains, the federal and the state claims arise neither out of the same transaction for res judicata purposes, nor out of a single group of operative facts. Saxon argues the complaints reveal that the two actions involve completely different transactions. The only matter at issue in the federal case was a dispute over the quality of the "Stulka" loan and UFM's breach of its obligations in connection with that transaction; at issue in the present case, however, are eight separate and distinct mortgage purchase transactions, with the factual allegations in the complaint pertaining only to early pay-offs in the respective transactions. UFM's position appears to be that since both claims originate from the Agreement, and the time periods of the two claims overlap, they are amenable to the doctrine of res judicata.

A section 2-619 motion to dismiss is expected to identify defects or defenses that negate a cause of action or refute crucial conclusions of law or material fact that are unsupported by allegations of specific fact in the complaint. Peter J. Hartmann Co. v. Capital Bank and Trust Co., 296 Ill.App.3d 593, 600, 230 Ill.Dec. 830, 694 N.E.2d 1108 (1998). Among the matters that may be raised under section 2-619 is that "the cause of action is barred by a prior judgment." 735 ILCS 5/2-619(a)(4)(West 1998). All well-pleaded facts in the complaint are admitted, together with all reasonable inferences gleaned from those facts, in the determination of whether significant facts are contained in the pleadings, which, if established, would entitle the complainant to relief; there will be no dismissal on the pleadings, unless it clearly appears no set of facts can be proved under the pleadings which will entitle the complainant to recover. Peter J. Hartmann Co.,296 Ill.App.3d at 600,230 Ill.Dec. 830,694 N.E.2d 1108. Facts and evidence must be viewed in the light most favorable to the non-moving party. Williams v. Board of Education of the City of Chicago, 222 Ill.App.3d 559, 562, 165 Ill.Dec. 78, 584 N.E.2d 257 (1991). If it cannot be determined with reasonable certainty that the alleged defense exists, the motion should not be granted....