Window World of Chicago-Land, LLC v. Window World, Inc. ( 2016 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No.  15-­‐‑2224
WINDOW   WORLD   OF   CHICAGOLAND,   LLC,   and   DAVID   L.
HAMPTON,
Plaintiffs-­‐‑Appellants,
v.
WINDOW  WORLD,  INC.,  et  al.,
Defendants-­‐‑Appellees.
____________________
Appeal  from  the  United  States  District  Court  for  the
Northern  District  of  Illinois,  Eastern  Division.
No.  13  C  4624  —  John  Robert  Blakey,  Judge.
____________________
ARGUED  JANUARY  7,  2016  —  DECIDED  JANUARY  27,  2016
____________________
Before  EASTERBROOK,  MANION,  and  SYKES,  Circuit  Judges.
EASTERBROOK,   Circuit   Judge.   Between   2005   and   2009   Da-­‐‑
vid   Hampton   and   his   business   (collectively   Hampton)   en-­‐‑
tered  into  several  contracts  with  Window  World,  Inc.,  which
allowed  Hampton  to  use  its  trademarks  and  business  meth-­‐‑
ods  for  the  retail  sale  and  installation  of  windows  and  doors.
In  2011  Window  World  alerted  Hampton  that  their  dealings
were   subject   to   the   Illinois   Franchise   Disclosure   Act,   815
2   No.  15-­‐‑2224
ILCS  705/1  to  705/44.  (Earlier  in  2011  the  Attorney  General  of
Illinois   had   sued   Window   World   under   that   Act;   the   case
was  settled  and  a  consent  decree  entered  a  month  after  Win-­‐‑
dow  World  notified  Hampton.)
Window   World   told   Hampton   that   he   had   35   days   to
elect   between   rescinding   the   contracts   (which   would   mean
stopping   the   use   of   Window   World’s   intellectual   property)
and  signing  a  formal  franchise  agreement.  Hampton  did  not
pursue  either  alternative.  Instead  he  filed  a  federal  suit,  un-­‐‑
der   the   diversity   jurisdiction,   accusing   Window   World   of
violating   the   Act,   of   fraud,   and   of   other   wrongs,   all   under
state   law.   This   suit,   No.   12   C   579,   was   assigned   to   Judge
Lindberg.  We  call  it  Suit  1.
While  Suit  1  was  pending,  Window  World  filed  litigation
of   its   own,   under   the   Lanham   Act,   seeking   (among   other
things)  damages  for  continued  use  of  its  intellectual  proper-­‐‑
ty   after   the   35-­‐‑day   option   had   expired,   and   an   injunction
against   future   use   of   its   marks   and   methods.   That   suit,   No.
12   C   4329,   also   was   assigned   to   Judge   Lindberg.   We   call   it
Suit  2.
In  Suit  2  Hampton  signed  and  returned  a  waiver  of  ser-­‐‑
vice,   see   Fed.   R.   Civ.   P.   4(d),   which   meant   that   the   time   to
answer   the   complaint   started   to   run.   But   Hampton   did   not
hire  a  lawyer  to  represent  him  in  Suit  2,  even  though  he  was
represented  by  counsel  in  Suit  1.  Hampton  dismissed  Suit  1,
without  prejudice,  three  weeks  after  Suit  2  began,  but  he  did
not   respond   to   the   complaint   in   Suit   2.   After   enough   time
had  passed,  Window  World  moved  in  Suit  2  for  entry  of  de-­‐‑
fault,  which  was  granted,  and  then  for  default  judgment.  All
motions   and   notices   in   Suit   2   were   duly   entered   in   the
court’s   electronic   filing   system,   but   Hampton   was   not   pay-­‐‑
No.  15-­‐‑2224   3
ing   attention   to  that  system.   So  he  did  not   respond  to  Win-­‐‑
dow  World’s  motions  or  appear  at  the  hearings  scheduled  to
address   them.   (Written   service   on   a   defaulting   party   is   not
required,  see  Fed.  R.  Civ.  P.  5(a)(2),  and  Window  World  did
not  go  the  extra  mile.)  On  December  4,  2012,  Judge  Lindberg
entered   a   default   judgment   that   awarded   Window   World
more   than   $100,000   in   damages   and   costs   and   permanently
enjoined  Hampton  from  using  any  of  Window  World’s  intel-­‐‑
lectual   property   (including   the   name   “Window   World”)   or
doing   anything   that   might   cause   confusion   between   his
business  and  the  Window  World  franchise  organization.
Hampton   went   right   on   calling   his   business   Window
World   of   Chicagoland   but   did   not   make   the   payments   re-­‐‑
quired   by   the   contracts.   (He   had   not   paid   Window   World
since  filing  Suit  1.)  Nor  did  he  pay  a  penny  of  the  damages
or  costs.  Oddly,  Window  World  did  not  ask  the  district  court
to   hold   him   in   contempt.   Hampton   has   since   shuttered   the
business,  which  may  explain  Window  World’s  inaction.  But
Hampton   has   not   stopped   litigating.   In   2013   he   filed   a   new
federal   suit   (Suit   3)   presenting   the   same   claims   as   the   dis-­‐‑
missed  Suit  1.  Hampton  also  asked  the  district  court  to  reo-­‐‑
pen   Suit   2   and   set   aside   the   default   judgment.   Judge   Lind-­‐‑
berg   having   retired,   that   request   was   assigned   to   Judge
Durkin.
Judge  Durkin  concluded  that  Hampton’s  failure  to  follow
the  electronic  filings  in  Suit  2,  coupled  with  his  professed  be-­‐‑
lief   that   Suits   1   and   2   had   been   dismissed   as   a   package,
amounted   to   excusable   neglect   that   justified   vacatur.   2014
U.S.   Dist.   LEXIS   44244   (N.D.   Ill.   Apr.   1,   2014).   But   Judge
Durkin   added   that   Hampton’s   inaction   in   Suit   2   had   put
Window  World  to  unnecessary  expense,  and  he  conditioned
4   No.  15-­‐‑2224
the   reopening   of   Suit   2   on   Hampton’s   payment   of   some
$33,000.   Once   again   Hampton   did   not   pay.   That   led   Judge
Durkin   to   vacate   his   vacatur.   On   August   5,   2015,   Judge
Durkin   reinstated   Judge   Lindberg’s   default   judgment   (both
damages   and   injunction).   Suit   2   then   was   reassigned   to
Judge  Blakey,  who  was  handling  Suit  3.
Hampton  did  not  appeal  from  the  re-­‐‑entered  judgment  in
Suit  2.  One  would  have  thought  this  the  end  of  matters,  be-­‐‑
cause   the   claims   that   Hampton   presses   against   Window
World   in   Suit   3   were   compulsory   counterclaims   in   Suit   2.
When  Hampton  nonetheless  pursued  Suit  3,  Window  World
asked   Judge   Blakey   to   dismiss   it   under   principles   of   claim
preclusion  (res  judicata).  Judge  Blakey  did  so.  He  concluded
that   the   twice-­‐‑final,   and   unappealed,   judgment   in   Suit   2
forecloses   any   claim   that   Window   World   owes   damages   to
Hampton   or   that   Hampton   can   continue   using   Window
World’s  name  or  other  trademarks.
Hampton  insists  on  appeal  that  this  decision  is  mistaken.
Preclusion  (res  judicata)  cannot  apply,  he  maintains,  because
it  concerns  how  the  final  decision  in  one  suit  affects  proceed-­‐‑
ings   in   a   different   suit.   Suits   2   and   3   are   now   the   same   suit,
according  to  Hampton,  because  they  have  been  consolidated
before  Judge  Blakey.
That  contention  confuses  administrative  and  full  consoli-­‐‑
dation.   Judge   Blakey   wrote   that   the   consolidation   is   for   ad-­‐‑
ministrative   convenience,   avoiding   the   need   for   multiple
district  judges  to  address  the  same  arguments;  the  suits  have
not   been   fully   consolidated,   he   observed,   if   only   because
they  still  carry  separate  docket  numbers.  That  is  why  Judge
Blakey  held  that  the  outcome  of  Suit  2  is  preclusive  in  Suit  3.
No.  15-­‐‑2224   5
The   difference   between   administrative   and   full   consoli-­‐‑
dation   is   established   by   Fed.   R.   Civ.   P.   42(a).   Subsection
(a)(2)  provides  for  full  consolidation,  while  subsections  (a)(1)
and  (a)(3)  authorize  other  forms  of  consolidation.  Suits  2  and
3  have  been  joined  for  hearings,  see  Rule  42(a)(1),  rather  than
fully  consolidated  under  Rule  42(a)(2).  Suits  administratively
consolidated  for  hearings  retain  their  independent  existence.
See   Gelboim   v.   Bank   of   America   Corp.,   135   S.   Ct.   897   (2015)
(same  result  for  cases  consolidated  under  28  U.S.C.  §1407  for
pretrial   proceedings).   So   Judge   Blakey   was   right,   for   the
right  reason.  (Hampton  concedes  that,  if  Suit  2  remains  sepa-­‐‑
rate  from  Suit  3,  his  current  claims  are  barred.)
Suppose   this   is   wrong,   however,   and   that   Suits   2   and   3
have   been   fully   consolidated.   The   fact   remains   that   Hamp-­‐‑
ton   is   subject   to   a   permanent   injunction—and   an   injunction
is   immediately   appealable   under   28   U.S.C.   §1291(a)   even
though   the   award   of   trademark   damages   could   not   have
been   appealed   (given   the   assumption   of   full   consolidation)
in  the  absence  of  a  partial  final  judgment  under  Fed.  R.  Civ.
P.   54(b).   The   right   doctrine   for   full   consolidation   would   be
law  of  the  case  rather  than  claim  preclusion,  because  the  re-­‐‑
lief   Hampton   seeks   under   state   law   would   be   inconsistent
with  the  relief  Window  World  already  has  received.  See  Pep-­‐‑
per   v.   United   States,   562   U.S.   476,   506   (2011).   Hampton   gave
up  his  chance  to  have  the  judgment  in  Window  World’s  fa-­‐‑
vor  set  aside,  and  there  is  no  other  plausible  exception  to  law
of   the   case,   which   means   that   it   just   does   not   matter   which
doctrine   applies.   If   the   suits   are   separate,   claim   preclusion
blocks   Hampton’s   current   claims;   if   they   are   fully   consoli-­‐‑
dated,  law  of  the  case  leads  to  the  same  outcome.
AFFIRMED