Cntrst Debt Recovery v. Ybarra

1

CNTRUST DEBT RECOVERY and BRUCE TEITELBAUM, Plaintiffs/Counter-Defendants, v. RUBEN YBARRA, YRY HOLDINGS, LLC, and BOULDER HILL APARTMENTS, LLC, Defendants/Counter-Plaintiffs.

No. 21 C 2702

United States District Court, N.D. Illinois, Eastern Division

April 2, 2024

OPINION AND ORDER

SARA L. ELLIS, UNITED STATES DISTRICT JUDGE.

In the latest installment of this longstanding commercial dispute Counter-Plaintiffs Ruben Ybarra, YRY Holdings, LLC (“YRY”), and Boulder Hill Apartments, LLC (“BHA”) have filed an amended counterclaim against Counter-Defendants CNTRST Debt Recovery, LLC (“CDR”) and Bruce Teitelbaum.^[1]In their amended counterclaim, Counter-Plaintiffs bring claims for tortious interference with contract, tortious interference with prospective economic advantage, and abuse of process against CDR and Teitelbaum. They also bring a claim for breach of contract against Teitelbaum. Counter-Defendants have moved to dismiss the amended counterclaim pursuant to Federal Rule of Civil Procedure 12(b)(6). Because Counter-Plaintiffs have failed to sufficiently allege their claims or they are otherwise barred by res judicata, the Court dismisses the amended counterclaim with prejudice.

BACKGROUND^[2]

I Counter-Plaintiffs

Between 2006 and 2008, Ybarra served as a vice president and loan officer at Centrust Bank. Ybarra also obtained loans from Centrust to establish a real estate portfolio. After Ybarra and his companies defaulted on their Centrust loans, Centrust filed several collection suits against Ybarra in the Circuit Court of Cook County, Illinois in 2010. The state court awarded judgments to Centrust, totaling over $2.6 million, against Ybarra.

In June 2010, Teitelbaum approached Ybarra's wife, Yolanda, to solicit her participation in certain business ventures. Yolanda then formed various entities that would allow her and Teitelbaum to participate in real estate transactions despite Ybarra's debts and the judgments against him. In 2011, the Yolanda Ybarra Revocable Trust, Ybarra Children Investment Trust, and Ruben Ybarra Family Insurance Trust formed YRY, a Delaware manager-managed limited liability company. Ybarra served as YRY's manager, although he was not a YRY member. Teitelbaum knew that Ybarra did not hold a membership interest in YRY.

In May 2015, YRY created BHA, a limited liability company based in Illinois, with YRY as its only member. It appears that YRY created BHA to hold certain apartments in Montgomery, Illinois (the “BHA Apartments”), to which BHA obtained title in June 2015.

II. Teitelbaum and the Shayarin Settlement

In October 2011, Teitelbaum helped incorporate Boulder 2011 LLC in Illinois. Boulder 2011 had as its members YRY, Shayarin LLC (with Teitelbaum as its manager), and Susan Goldner. Teitelbaum and Ybarra served as Boulder 2011's managers.

In August 2014, seeking to dissolve Boulder 2011 and compel the sale of the BHA Apartments, Teitelbaum and Shayarin filed suit in state court against YRY, Ybarra, and Boulder 2011. In the Shayarin case, Teitelbaum falsely represented that Ybarra was the sole member of YRY. The parties settled the Shayarin case in April 2015. Pursuant to the Shayarin settlement, YRY purchased Teitelbaum's and Shayarin's membership interest in Boulder 2011 for $1.16 million. Teitelbaum also agreed to relinquish interest in the BHA Apartments and release the Counter-Plaintiffs from any and all claims, including those related to the BHA Apartments. The state court then dismissed the Shayarin case.

III. Creation of CDR and its Agreement with Centrust to Pursue Centrust's Judgments Against Ybarra

By the summer of 2015, Ybarra owed more than $3.3 million on the Centrust judgments. Centrust had not actively pursued collection of the judgments, however, until Teitelbaum contacted Centrust around that time. Teitelbaum formed CDR on August 8, 2015 and assumed the role of CDR's president. Ten days later, CDR and Centrust executed a confidential “Agreement of Creditors” that gave CDR the authority to collect the Centrust judgments against Ybarra on Centrust's behalf. The parties agreed that CDR would receive 70% of any recovered funds after the reimbursement of legal expenses, with Centrust receiving the remaining 30%.

On September 2, 2015, CDR also obtained the right to pursue litigation against Ybarra with respect to property owned by 7550 Kingston LLC (the “Kingston Property”). Select Funding LLC held certain mortgage loans against the Kingston Property and assigned the Kingston Property's underlying mortgage and the right to pursue litigation to CDR on that date. Select Funding's Office Manager Eric Ferleger, a disbarred attorney and friend of Teitelbaum, organized the assignment. In December 2015, CDR formally substituted in for Select Funding as the plaintiff in the Kingston Property litigation.

IV. Motions for Charging Order Against Ybarra

In January 2016, Centrust filed motions for charging orders^[3]against Ybarra's alleged interest in YRY in several of the cases in which Centrust had obtained judgments against Ybarra, including Case No. 2010 L 50077 (the “50077 case”). However, Centrust withdrew its motion in the 50077 case after Ybarra and YRY's counsel advised Centrust's counsel that Centrust had not yet served citations on Ybarra or YRY and that Ybarra was the manager-not a member-of YRY.^[4] In July 2016, Centrust filed motions for charging orders in all of the cases except the 50077 case, again seeking the imposition of a lien on Ybarra's supposed membership interest in YRY. The day before the state court was to hear these motions in August 2016, Centrust filed “corrected” motions that changed the amount owed on the judgments. Doc. 91 ¶ 30. Counsel for Centrust sent notices of these motions via regular mail to Ybarra at an address in Boca Raton, Florida, where he did not reside.

On September 9, 2016, in all but the 50077 case, Centrust filed motions to appoint Ferleger as the receiver to enforce the charging orders, which it served by regular mail to Ybarra in his individual capacity and as YRY's manager. The motions did not reveal Ferleger's prior involvement in assigning Select Funding's interest in the Kingston Property to CDR, and they also continued to represent that Ybarra served as YRY's managing member and received income from YRY. Centrust's president knew of the misrepresentations. Despite the fact that YRY and Ybarra did not have counsel at the time, the state court granted the motions on September 14, requiring Ybarra and YRY to turn over records and cooperate with Ferleger. The court also barred YRY from making distributions without prior notice to Ferleger.

V. Conditional Judgments and Petitions to Revive

On November 16, 2016, the state court entered a conditional judgment against YRY for $1,142,414.88 in the 50077 case for its alleged failure to comply with a third party citation. The order also authorized Centrust to serve YRY by sending the order via certified mail to Ybarra.

On January 11, 2017, Centrust filed amended notices of motion to revive the 2010 judgments it had obtained against Ybarra. The amended notices did not attach the actual motions, however, and were sent by regular mail to the same Boca Raton address where Ybarra did not reside, a fact that Counter-Defendants knew at the time.

On January 28, 2017, Centrust's judgment in the 50077 case lapsed, as did Centrust's judgment lien on certain of Ybarra's property. On February 23, 2017, the state court allowed Centrust to serve its petition for revival of the judgment by mailing it to Ybarra's new lawyer. On April 4, 2017, Centrust attempted to revive the $1,853,685.51 judgment in the 50077 case.^[5]

VI. Subsequent Proceedings

On April 21, 2017, Ybarra traveled from Texas to Illinois to sit for a preliminary citation examination at Centrust's counsel's office. There, the Cook County Sheriff arrested Ybarra pursuant to a rule to show cause and body attachment issued by the state court.

In September 2018, Centrust filed an emergency motion in the 50077 case to appoint a receiver for the BHA Apartments. BHA agreed to a freeze of its operating account while the parties briefed the motion and before its presentment date on October 16, 2018. Centrust did not proceed with the motion in the 50077 case, however, and ultimately withdrew it on June 4, 2019. In withdrawing the motion, Centrust did not agree to withdraw or vacate the portion of the briefing schedule that froze BHA's operating account. Centrust's decision not to proceed on the motion likely had to do with the fact that another judge denied a virtually identical motion filed by CDR on October 2, 2018. In doing so, the judge remarked that “the [Shayarin] case was dismissed with prejudice and Teitelbaum gave up any rights to BHA and the Boulder Hill Apartments, an asset of considerable value that Counter-Defendants [YRY] now control.” Doc. 91 ¶ 92 (alterations in original).

In January 2019, Yolanda sat for a citation examination in the 50077 case, explaining that Ybarra had no interest in YRY and that she made the decisions for YRY and BHA. She further testified that Ybarra could not access YRY's account and that she formed YRY as part of an estate planning strategy created by an attorney whom Teitelbaum introduced to her. After the examination, Teitelbaum and Centrust's president discussed their strategy of using Yolanda to obtain concessions from Ybarra.

In April 2019, through new counsel retained by Teitelbaum Centrust filed a motion in the 50077 case for a judicial determination to sell the BHA Apartments pursuant to 735 Ill. Comp. Stat. 5/2-1402. That motion again incorrectly represented that Ybarra was a member of YRY. The motion had the effect of freezing YRY's ability to sell or transfer the BHA...