The Supreme Court of Illinois recently held that a bank’s suit for breach of a promissory note — a third attempt to collect from the same defendant borrowers based on the same default of the promissory note — was barred by Illinois’ ‘single refiling rule.’

In so ruling, the Supreme Court concluded that, although the first lawsuit sought relief of foreclosure of the mortgage that secured the loan, and the second and third lawsuits were for breach of the underlying promissory note, all three suits asserted the same cause of action under the mortgage and the note, importantly, because the first action also sought a deficiency judgment under the note.

A copy of the opinion in First Midwest Bank v. Cobo is available at: Link to Opinion.

After two borrowers defaulted on their mortgage loan, the mortgage lender filed a foreclosure complaint in Cook County, Illinois (the “first lawsuit”) seeking “judgment of foreclosure and sale” and “personal judgment for deficiency, if sought.”

The loan was acquired by a successor bank which voluntarily dismissed the foreclosure action on April 2, 2013, and filed a new suit against the borrowers on April 16, 2013 (the “second lawsuit”) for breach of the promissory note evidencing the loan, and alleging the same date of default as the first lawsuit. After the bank’s motion to continue trial was denied two years later on April 3, 2015, the bank voluntarily dismissed the second lawsuit on the same day.

On July 30, 2015, the bank filed yet another action against the borrowers (the “third lawsuit”) for breach of the promissory note evidencing the loan and unjust enrichment, again asserting the same date of default as the first and second lawsuits.

The borrowers moved to dismiss, arguing that the third lawsuit violated Illinois’ “single refiling rule,” section 13-217 of the Illinois Code of Civil Procedure. The trial court denied the borrowers’ motion to dismiss, concluding that the pending third lawsuit was the first refiling of the breach of promissory note action — both distinct from the first lawsuit seeking to foreclose the mortgage which secured the loan. The borrowers reasserted their “single refiling rule” argument as an affirmative defense, but it was stricken by the trial court. The bank was eventually granted summary judgment and an award of $308,192.56 in damages for the borrowers’ breach of the promissory note.

The borrowers appealed the entry of summary judgment.

On appeal, the Illinois Appellate Court vacated the trial court’s order and dismissed the complaint, concluding that although the mortgage and note are distinct contracts, all three lawsuits arose from the same operative facts and based on the same default of the note, and thus, constitute the same causes of action for the purposes of the single refiling rule. See LSREF2 Nova Investments III, LLC v. Coleman, 2015 IL App (1st) 140184 (foreclosure complaint that seeks a deficiency judgment arises out of both the mortgage and the note).

Although the bank initially distinguished Coleman in the trial court by noting that in that case, the first lawsuit had reached a final adjudication on the merits, rather than a voluntary dismissal like the first lawsuit here, the appellate court found that final adjudication was a component of res judicata, not the single refiling rule.

The Supreme Court of Illinois granted the bank’s petition for leave to appeal.

The Supreme Court had previously interpreted the “single refiling rule,” section 13-217 to allow “one, and only one, refiling of a claim” (Flesner v. Youngs Development Co., 145 Ill. 2d 252,254 (1991)), but it had not yet spoken on the issue as to whether two complaints state the same claim depends how the plaintiff labels the complaint.

The Court adopted the analysis used in Illinois Appellate Courts to determine whether two suits assert the same cause of action for the purposes of the single refiling rule as they use for res judicata. This test, adopted by the Supreme Court in River Park, Inc. v. City of Highland Park, 184 Ill. 2d 290, 311 (1998) treats separate claims as the same cause of action “if they arise from a single group of operative facts.”

Citing River Park, the Supreme Court rejected the bank’s initial argument that a foreclosure proceeding is quasi in rem, but breach of note is in personam, under the transactional test which treats two claims as identical “if they arise from a single group of operative facts, regardless of whether they assert different theories of relief.” River Park, Inc., 184 Ill. 2d at 311. The Supreme Court disagreed with the bank’s argument that the facts shared between the foreclosure and breach of note complaints derive from the Illinois Mortgage Foreclosure Law form complaint, because the foreclosure law does not require a plaintiff to seek a deficiency judgment, as the bank did in the first lawsuit here. 735 ILCS 5/1504, et seq. The Supreme Court further ruled that the bank could not avoid the single refiling rule by claiming that the first lawsuit only requested relief of personal judgment for a deficiency “if sought.”

In rejecting the bank’s reliance upon LP XXVI, LLC v. Goldstein, 349 Ill. App. 3d 237 (2004) (res judicata did not bar plaintiff’s suit because the mortgage, note and guaranty were separate transactions) and Turczak v. First American Bank, 2013 IL App (1st) 121964 (lender can proceed in separate suits to enforce mortgage and underlying promissory note), the Supreme Court concluded that Coleman distinguished its facts from those in Goldstein and Turczak.

Unlike Coleman and the instant matter, Goldstein arose from the defendant’s guaranty that specifically waived the argument raised by borrowers here and did not address a situation in which the lender sought a remedy under the same instrument in three separate suits, and the first lawsuit in Turczak only sought default judgment — and thus, did not seek to adjudicate the parties’ rights under the disputed instrument.

Though Goldstein and Turczak both rely on Farmer City State Bank v. Champaign National Bank, 138 Ill. App. 3d 847, 852 (1985) to demonstrate that a plaintiff may pursue remedies under a mortgage and a note either consecutively or concurrently, the Supreme Court held that it need not overturn Farmer City to rule in borrowers’ favor to reach its conclusion. Here, the bank’s predecessor sought relief under the mortgage and note concurrently, which was not inappropriate at the time it was filed.

The Supreme Court of Illinois stated that lenders may pursue a claim under the mortgage and note either consecutively or concurrently; however, a lender may not assert a claim under the mortgage and the note concurrently by seeking a foreclosure and a deficiency judgment, and then assert a claim under the note consecutively twice more, as the bank did here.

In response to the bank’s concerns that its ruling would limit all available remedies and require lenders to file one suit under all possible instruments, the Supreme Court stated that this is avoided by focusing on the remedy sought, and that although foreclosure complaints often share facts with other suits a lender may bring, the shared facts are not necessarily “operative facts” under the transactional test. River Park, Inc., 184 Ill. 2d at 311.

The Supreme Court further noted that because its opinion does not hold that the mortgage and note constitute the same transaction, claims under those instruments need not be litigated at the same time for the purposes of the single refiling rule, and that “this reasoning also applies to other instruments besides the note and the mortgage, such as a guaranty or a loan modification agreement.”

Therefore, the Supreme Court of Illinois concluded that the third lawsuit constituted a third attempt by the bank to collect from the borrowers based upon the same default, and thus, was barred by the “single refiling rule.” Accordingly, the appellate court’s opinion was affirmed, and the trial court’s entry of summary judgment in the bank’s favor was vacated.