Popper v. Kaech

JOSHUA POPPER, Plaintiff, v. JAMES A KAECH, SR., Defendant.

No. 20-cv-4383

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

July 15, 2021

MEMORANDUM OPINION AND ORDER

Robert M. Dow, Jr. United States District Judge

Joshua Popper (“Plaintiff”) brought this lawsuit arising from his purchase of residential real estate from James A Kaech, Sr. (“Defendant”) [17]. Defendant moved to dismiss [18]. For the reasons stated below, Defendant's motion [18] is denied. Counsel are directed to file a joint status report no later than July 29, 2021 that includes (a) a proposed discovery plan and (b) a statement in regard to any settlement discussions and/or any mutual request for a referral to the assigned Magistrate Judge for a settlement conference. The Court will set further case management deadlines following review of the joint status report.

I. Background

In November 2019, Plaintiff entered into a real estate contract to purchase Defendant's former residence from Defendant for $150, 000. [17, at ¶ 4]. Defendant executed a residential real property disclosure report (“property report”) pursuant to the Residential Real Property Disclosure Act, 765 Ill. Comp. Stat. 77. [Id., at ¶ 5]. Plaintiff relied on Defendant's representations in the property report in negotiating the terms of the contract, entering into the contract, and eventually closing on the contract. [Id., at ¶ 8]. Plaintiff alleges that the property report made several false representations of fact related to (1) structural defects caused by termite defects, (2) material defects and cracks in the foundation and basement, (3) flooding and reoccurring leakage in the basement, (4) the roof, and (5) the septic system (collectively, “material representations”). [Id., at ¶ 7].

First Defendant represented on the property report that he was unaware of any material defects in the walls, windows, doors, or floors of the property and that he was unaware of any structural defects caused by previous infestations of termites. [Id., at ¶ 9]. However, in September 2020, Plaintiff first discovered that there was previously a severe infestation of termites and that termites had completely destroyed a significant portion of the walls, including structural walls, joists, and beams of the property that are generally necessary structural supports. [Id., at ¶ 10]. To conceal the severe damage to the structure, Defendant erected new non-structural walls over the termite damage without replacing the wood for the structural walls, joists, and beams necessary to support the structure. [Id., at ¶ 11]. Because of the termite damage, the property is structurally unsafe and uninhabitable. [Id., at ¶ 12]. Replacement of the structural components of the property would cost at least as much as the property is worth. [Id., at ¶ 13].

Next, Defendant represented on the property report that he was unaware of any material defects in the foundation or basement of the property. [Id., at ¶ 14]. Contrary to this representation, there are several significant cracks and other material defects in the foundation of the residence at the property. [Id., at ¶ 15]. To conceal these defects, the Defendant piled heavy construction materials in front of the cracks and defects to avoid detection by Plaintiff until after the closing of the transaction. [Id., at ¶ 16]. Due to these defects, water seeps and leaks through the foundation and into the basement of the residence. [Id., at ¶ 17]. The cracks and defects in the foundation render the property structurally unsafe and uninhabitable, and the cost to remediate them is $80, 000. [Id., at ¶¶ 20-21].

On the property report, Defendant also represented that he was aware of only “minor seepage during heavy rains.” [Id., at ¶ 22]. However, the seepage in the residence is significant and occurs after even nominal amounts of rain. [Id., at ¶¶ 2324].

Further, Defendant represented on the property report that he was unaware of any leaks or material defects in the roof, ceilings, or chimney of the property. [Id., at ¶ 25]. Contrary to this representation, the roof has a significant leak that has caused water to leak into the bathroom and bedroom of the property when it rains. [Id., at ¶ 26]. To conceal the roof leak, Defendant painted in the bathroom to cover up the water damage without also remediating the underlying source of the leak in the roof. [Id., at ¶ 27]. The cost to fix the leaking roof is $6, 500. [Id., at ¶ 28].

Finally, Defendant represented on the property report that he was unaware of any material defects in the septic system. [Id., at ¶ 29]. However, the septic system is functionally inoperable and was functionally inoperable at the time Defendant executed the property report. [Id., at ¶ 30]. At all relevant times, the sewer line from the property was not properly connected to the septic tank and the septic tank was pitched incorrectly. [Id., at ¶ 31]. Therefore, the sewer line does not properly drain to the septic tank, causing significant damage to the residence. [Id., at ¶ 32]. The cost to remediate the septic system issues is $25, 000. [Id.]. Plaintiff alleges that Defendant had actual knowledge of the septic system issue, and all other issues discussed above, at the time he executed the property report. [Id., at ¶ 34].

Plaintiff brought this diversity action, requesting recission of the contract and damages and alleging breach of contract, a violation of the Residential Real Property Disclosure Act, and fraud. [Id., at ¶¶ 35-61]. Defendant moved to dismiss the case under (1) Federal Rule of Civil Procedure 12(b)(7), arguing that a nondiverse party is necessary and indispensable to the action; and (2) Federal Rule of Civil Procedure 12(b)(6), arguing that Plaintiff failed to state a claim.

II. Legal Standards

A. Rule 12(b)(7) Joinder of Indispensable Parties

Rule 12(b)(7) permits dismissal for failure to join a party under Federal Rule of Civil Procedure 19. Rule 19 “permit[s] joinder of all materially interested parties to a single lawsuit so as to protect interested parties and avoid waste of judicial resources.” Moore v. Ashland Oil, Inc., 901 F.2d 1445, 1447 (7th Cir.1990). Rule 19(a) establishes when a party is required to be joined. Specifically, a party “whose joinder will not deprive the court of subject-matter jurisdiction must be joined” if “in that person's absence, the court cannot accord complete relief among existing parties.” Fed.R.Civ.P. 19(a)(1)(A). Such a party is also required to be joined if the party “claims an interest relating to the subject of the action and is so situated that disposing of the action in the person's absence” would either (1) “as a practical matter impair or impede the person's ability to protect the interest;” or (2) “leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.” Fed R. Civ P. 19(a)(1)(B). If a party is necessary under Rule 19(a) but cannot be joined, courts turn to Rule 19(b) to “determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed.” “[F]ederal courts are reluctant to dismiss for failure to join where doing so deprives the plaintiff of his choice of federal forum.” Davis Cos. v. Emerald Casino, Inc., 268 F.3d 477, 481 (7th Cir. 2001). Further, “the party advocating for joinder generally has the initial burden to establish the absent person's interest.” In re Veluchamy, 879 F.3d 808, 819 n.4 (7th Cir. 2018). “In ruling on a dismissal for lack of joinder of an indispensable party, a court may go outside the pleadings and look to extrinsic evidence.” Davis Cos., 268 F.3d at 480 n.4.

B. Rule 12(b)(6) Failure to State a Claim

To survive a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted, the complaint typically must comply with Rule 8(a) by providing “a short and plain statement of the claim showing that the pleader is entitled to relief, ” Fed.R.Civ.P. 8(a)(2), such that the defendant is given “fair notice of what the * * * claim is and the grounds upon which it rests.” Bell Atl. Corp v. Twombly, 550 U.S. 544, 555 (2007) (alteration in original) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). “A pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S at 555). Under Rule 9(b), “a party must state with particularity the circumstances constituting fraud or mistake, ” though “[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Fed.R.Civ.P. 9(b). To plead fraud with particularity, the party must include “the who, what, when, where, and how” of the fraud. DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990). In determining whether the complaint meets these standards, the Court accepts as true all of Plaintiff's well-pleaded factual allegations and draws all reasonable inferences in Plaintiff's favor. Killingsworth, 507 F.3d at 618.

III. Analysis

A. Dismissal for Failure to Join a Necessary Party

Defendant argues that Plaintiff's mortgagee is a necessary party and that, because the mortgagee is a resident of Illinois the Court should dismiss the case under Rule 12(b)(7).^[1] Defendant argues that the mortgagee is a necessary for two reasons. First, because the complaint alleges that the property is uninhabitable and a total loss and that these “alleged conditions would place mortgagee's security interest in jeopardy.” [18, at 3]. Second, because “any remedy sought by Plaintiff, including recission, would require joinder of” the mortgagee because the “Court does not have jurisdiction to make...