Muhammad, Dennis v. Oliver, Christine ( 2008 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 07-3336
D ENNIS M UHAMMAD, et al.,
Plaintiffs-Appellants,
v.
C HRISTINE O LIVER, et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 06 C 6887—Blanche M. Manning, Judge.
A RGUED M AY 5, 2008—D ECIDED N OVEMBER 10, 2008
Before C UDAHY, P OSNER, and R OVNER, Circuit Judges.
P OSNER, Circuit Judge. The plaintiffs have appealed
from the dismissal of their suit for failure to state a
claim. Fed. R. Civ. P. 12(b)(6). The suit is based on 42 U.S.C.
§ 1981, which provides in pertinent part that everyone
“shall have the same right . . . to make and enforce con-
tracts . . . as is enjoyed by white citizens.” The appeal
presents issues relating to pleading, res judicata, and the
meaning of section 1981.
The principal plaintiff (the other plaintiffs needn’t be
discussed)—the Dennis Muhammad Community and
2 No. 07-3336
Economic Development Corporation (MDC)—is a minority
business enterprise. The defendants are the nonprofit
Chicago Dwellings Association (CDA), the for-profit CDA
Management (CDAM), and Christine Oliver, the chief
executive officer of both defendant companies. MDC and
CDAM signed a joint-venture agreement to bid on a
contract to install air conditioners in buildings owned by
the Chicago Housing Authority. The joint venture’s bid
was successful, but MDC and the defendants had a
falling out and in 2002 MDC sued CDA and CDAM in
an Illinois state court charging breach of contract. CDA
and CDAM had, the suit charged, violated the joint-
venture agreement by refusing to permit MDC to do the
share of the installation work that the agreement allotted
to it. CDA moved to be dismissed from the suit because
it had not signed the contract. The judge granted the
motion. In 2005, MDC moved to dismiss its suit (the
record does not indicate why)—which now was just
against CDAM—and the judge granted that motion too
and dismissed the suit without prejudice.
Two years later MDC brought the present suit, this one
in federal court, alleging the same violations of the joint-
venture agreement but adding that CDA, CDAM, and
Oliver (who had not been named as a defendant in the
previous suit) had treated MDC as a “minority front.” That
is, they had used MDC’s participation in the bid to
increase the likelihood that CDAM would be the
successful bidder for the contract with the Chicago Hous-
ing Authority but had never intended to allow MDC to do
any of the work called for by the contract. This is the
conduct alleged in the present suit to violate section 1981.
No. 07-3336 3
The district judge held that the dismissal of the first suit
barred the present one so far as the company defendants
were concerned and that although the claim against Oliver
was not barred by res judicata, because she had not been
a party to the first suit, she could not be held liable for
violating section 1981 because she had not been a
signatory of the joint-venture agreement.
The two suits were based on different legal theories—the
first on state contract law, the second on a federal civil
rights statute—but both arose out of the same facts,
namely conduct by the defendants that is alleged to have
violated the joint-venture agreement to the prejudice
of MDC, the plaintiff in both suits. Ordinarily a second
suit arising from the same events as the first one is
barred only if there was a final judgment, with prejudice,
in the first suit; and the final judgment in the first suit
was without prejudice. But when a suit is abandoned
after an adverse ruling against the plaintiff, the judgment
ending the suit, whether or not it is with prejudice, will
generally bar bringing a new suit that arises from the
same facts as the old one. “[A] plaintiff who splits his
claims by voluntarily dismissing and refiling part of an
action after a final judgment has been entered on another
part of the case subjects himself to a res judicata defense.”
Hudson v. City of Chicago, 889 N.E.2d 210, 217 (Ill. 2008).
When a “final judgment rendered in an action
extinguishes the plaintiff’s claim,” in this case against
CDA, which the judge had dismissed from the case
en route to entering the final judgment dismissing the
entire case, “the claim extinguished includes all rights
of the plaintiff to remedies against the defendant with
4 No. 07-3336
respect to all or any part of the transaction . . . out of which
the action arose.” Restatement (Second) of Judgments § 24(1)
(1982). Otherwise “any plaintiff could file an action with
multiple counts, dismiss some but not all of the counts,
obtain a final judgment on the undismissed counts, and
if unsuccessful on the counts not dismissed, refile the
previously dismissed counts. Such a practice would
impair judicial economy and would effectively defeat
the public policy underlying res judicata.” Rein v. David A.
Noyes & Co., 665 N.E.2d 1199, 1208 (Ill. 1996).
And if as in this case there are multiple defendants, the
extinction of the claim against one (CDA) extinguishes
the plaintiff’s claim against the others (CDAM and Oliver)
if the claim against them arose out of the same facts as
the first claim, as is true in this case. Otherwise a
plaintiff could litigate the same claim indefinitely by
suing one joint tortfeasor after another. Evans ex rel. Evans
v. Lederle Laboratories, 167 F.3d 1106, 1113 (7th Cir. 1999)
(Illinois law). It is true that Evans was distinguished
in Hendricks v. Victory Memorial Hospital, 755 N.E.2d 1013,
1015 (Ill. App. 2001), on the ground that while in Evans “all
three defendants were potentially liable for exactly the
same conduct: providing the vaccine to plaintiffs’
son . . . here plaintiffs’ causes of action against Sipos and
Victory, while relating in a general way to the same
conduct, allege separate activities.” But in the present
case all three defendants are sought to be held liable for
the identical conduct, namely the creation of a “minority
front” in derogation of the plaintiff’s rights.
The plaintiff points out that if “the parties have agreed in
terms or in effect that the plaintiff may split his claim,”
No. 07-3336 5
Restatement, supra, § 26(1)(a), the bar of res judicata is
lifted, which according to the plaintiff is the situation
here. Its brief states that the defendants’ lawyer “proposed
that both sides [in the state court suit] agree to
voluntarily withdraw their claims, and that all parties
execute a standstill agreement to ensure that their
legal rights would not be harmed in any way by the
voluntary agreement to withdraw the lawsuit. Both
sides agreed to this arrangement, and signed a standstill
agreement.”
The only support for this statement that the plaintiff
offers is a paragraph in the complaint which says that
one of the defendant’s lawyers suggested such an agree-
ment. The complaint does not say that the agreement
was ever actually made, and the record contains no text
of any such agreement. At argument the plaintiff’s lawyer
stated that the agreement is in a box of documents that
he has not looked at. The excruciatingly long complaint
contains 322 paragraphs; if there is an executed standstill
agreement, one would expect an allegation to that effect.
There is none. The complaint’s silence is deafening. See
Evancho v. Fisher, 423 F.3d 347, 354-55 (3d Cir. 2005);
Cline v. Rogers, 87 F.3d 176, 184 (6th Cir. 1996).
For a plaintiff’s lawyer who believes that his client has
a document that shows his suit was not barred to fail to
read it is neglect on a par with failing to conduct the
preliminary investigation that a plaintiff must conduct
before he can bring a suit. Fed. R. Civ. P. 11(b)(3); see, e.g.,
Teamsters Local No. 579 v. B & M Transit, Inc., 882 F.2d 274,
280 (7th Cir. 1989). And for the lawyer not to have read
6 No. 07-3336
the document before the appeal was argued was a
stunning failure to assist this court in the proper disposi-
tion of the appeal. See, e.g., id. at 280; Medical Emergency
Service Associates, S.C. v. Foulke, 844 F.2d 391, 399-
400 (7th Cir. 1988); Allen v. Utley, 129 F.R.D. 1, 4-5 (D.D.C.
1990).
The plaintiff cannot defeat the application of res judicata
by arguing that the judge in the first suit, by allowing the
plaintiff to dismiss it voluntarily and without prejudice,
“expressly reserved the plaintiff’s right to maintain the
second action.” Restatement, supra, § 26(1)(b). Such a
dismissal does not “expressly” reserve anything. Rein v.
David A. Noyes & Co., supra, 665 N.E.2d at 1207-08. Nor
was it improper for the district judge to invoke res
judicata even though the defendants had failed to argue
it. The doctrine “ ‘is not based solely on the defendant’s
interest in avoiding the burdens of twice defending a
suit, but is also based on the avoidance of unnecessary
judicial waste.’ ” Arizona v. California, 530 U.S. 392, 412
(2000).
It is true that res judicata is not one of the affirmative
defenses that Rule 12(b) permits to be made by motion
rather than in the answer to the complaint. But when an
affirmative defense is disclosed in the complaint, it pro-
vides a proper basis for a Rule 12(b)(6) motion. (For the
general principle see Jones v. Bock, 549 U.S. 199, 215 (2007);
Walker v. Thompson, 288 F.3d 1005, 1009-10 (7th Cir.
2002), and Jones v. Alcoa, Inc., 339 F.3d 359, 366 (5th
Cir. 2003), and for its application to the defense of res
judicata see In re Colonial Mortgage Bankers Corp., 324
No. 07-3336 7
F.3d 12, 20 (1st Cir. 2003).) This proposition is entailed by
the principle that a plaintiff can plead himself out of
court. E.g., Tamayo v. Blagojevich, 526 F.3d 1074, 1086 (7th
Cir. 2008); American Nurses’ Ass’n v. Illinois, 783 F.2d 716,
724 (7th Cir. 1986). No purpose would be served by com-
pelling the defendant to file an answer rather than
proceed by motion when the plaintiff has pleaded the
answer himself.
The remaining issue is Christine Oliver’s possible
liability for violating 42 U.S.C. § 1981. The judge’s ground
for excusing her was erroneous because the fact that she
was not a party to the joint-venture agreement was irrele-
vant. The statute gives nonwhites the same right to
make and enforce contracts as whites have. For the Ku
Klux Klan to beat up nonwhites who try to enforce
their contracts violates the statute even though the Klan
is not a party to the contracts. Vietnamese Fishermen’s
Ass’n v. Knights of Ku Klux Klan, 518 F. Supp. 993, 1007-
08 (S.D. Tex. 1981). That is to say that tortious inter-
ference with contract rights violates section 1981 when
the motivation for the interference is racial. See CBOCS
West, Inc. v. Humphries, 128 S. Ct. 1951, 1955 (2008); cf.
Sullivan v. Little Hunting Park, Inc., 396 U.S. 229, 236 (1969);
Shaikh v. City of Chicago, 341 F.3d 627, 630-31 (7th Cir. 2003);
Faraca v. Clements, 506 F.2d 956, 959 (5th Cir. 1975). And
that is what Oliver is accused of: using her authority
as CDAM’s chief executive officer to cause, for racial
reasons, MDC’s contractual rights to be violated.
But the claim fails for several independent reasons. The
first is the principle of the Evans case: that you cannot
8 No. 07-3336
refile a suit based on the same facts against a defendant
whom you could have sued but did not sue in your
first suit. Second is the rule of Towns v. Yellow Cab Co.,
382 N.E.2d 1217, 1221-23 (Ill. 1978). As we explained
in Bachenski v. Malnati, 11 F.3d 1371, 1377-78 (7th Cir.
1993) (footnotes and citations omitted), “when respondeat
superior is the sole asserted basis of liability against a
master for the tort of his servant an adjudication on the
merits in favor of either the master or servant precludes
suit against the other. The rule developed as an offshoot
of the doctrine of res judicata. Although a master and his
servant are not technically in privity, the preclusive
principles underlying res judicata were thought to have
equal application in the respondeat superior setting because
the operative facts and law controlling a servant’s direct
liability are always identical to those that determine the
vicarious liability of his master (so long as the agency
relationship and its scope are not in dispute). If the
master is vicariously liable, the servant must be directly
liable (and vice versa); if the master is not vicariously
liable, the servant cannot be directly liable (and vice
versa). The Towns doctrine is established law in Illinois.”
(And not only in Illinois; see Peppmeier v. Murphy, 708
N.W.2d 57, 63-64 (Iowa 2005); Restatement, supra, § 51.)
So if you are hit by a truck and sue the truck company
and lose, you cannot resuscitate your claim by suing the
truck driver unless the company’s successful defense in
the suit against it was a defense personal to the company.
Id., § 51(1)(b), and illustration 1. If the company won its
case because the jury determined that the driver had not
been negligent and therefore his employer was not liable
No. 07-3336 9
under the doctrine of respondeat superior, that would
extinguish the claim against the driver because the previ-
ous suit had exonerated him.
One might suppose that the principle which drove the
result in Towns was not res judicata (claim preclusion) but
collateral estoppel (issue preclusion)—the driver was
relying on the issue of his liability having been resolved
in the suit against his employer. But then he would have
to show that the issue had been resolved in a full and
fair hearing, Herzog v. Lexington Township, 657 N.E.2d 926,
929-30 (Ill. 1995), whereas if the suit against him is
deemed a case of claim splitting all he has to show is
that the liability unsuccessfully asserted against his
employer in the previous suit was derivative from
liability of himself. As the Restatement explains (elaborating
on the reasoning in the Towns opinion), the courts
rightly treat the second suit as an attempt at claim split-
ting, for
in an important sense . . . there is only a single claim.
The same loss is involved, usually the same measure of
damages, and the same or nearly identical issues of
fact and law. The substantive legal basis for vicarious
responsibility rests largely on the notion that the
injured person should have the additional security
for recovery of his loss that is represented in imposi-
tion of liability on a person other than the primary
obligor. The optional additional security thus afforded
by rules of vicarious responsibility should not, how-
ever, afford the injured person a further option to
litigate successively the issues upon which his claim
10 No. 07-3336
to redress is founded. . . . [I]f he is allowed to sue the
second obligor after having lost an action against
the first, two anomalous consequences may result.
First, he may be given recovery for conduct that has
already been determined not to be wrongful. Second,
if the first action is unsuccessfully maintained against
the primary obligor, and the second successfully
maintained against the person vicariously responsible,
it could happen that the latter could obtain
indemnity from the primary obligor. The result would
be that the primary obligor would have to pay indi-
rectly an obligation from which he had been directly
exonerated.
For these reasons, the rules of res judicata
applicable in this situation should approximate those
that govern when the same claim is successively
asserted against a single defendant . . . .
Restatement, supra, § 51, comment b.
Oliver corresponds to the truck driver. CDAM’s liability
is derivative from hers, because she is alleged to have
been the moving force in its alleged violation of the plain-
tiff’s rights. If there was no violation by CDAM, she is
off the hook. But a complication arises from the fact
that the dismissal of CDAM from the previous suit was
not an adjudication on the merits—that is, it was not res
judicata (in English, “matter adjudicated”)—as Towns, and
its paraphrase in Bachenski, require. 382 N.E.2d at 1221-
22. It was a voluntary dismssal, which under Towns is not
an adjudication on the merits. Id. But remember that
when a plaintiff abandons a suit after an adverse ruling
No. 07-3336 11
(in this case, the dismissal of MDC’s claim against CDA),
the abandonment, though a voluntary dismissal, is res
judicata.
We are a little puzzled by the statement in Bachenski,
echoing Towns, 382 N.E.2d at 1221, that master and
servant are not in privity. If they are, a final judgment in
a suit against one would bar a suit against the other
without regard to the doctrine of Towns; indeed, the
doctrine would be supererogatory. The Illinois courts
define privity in a fashion that would seem to embrace
any master-agent case: “ ‘Privity exists between two
parties who adequately represent the same legal interests.’
‘It is the identity of interest that controls in determining
privity, not the nominal identity of the parties.’ ‘A
nonparty may be bound under privity if his interests are
so closely aligned to those of a party that the party is the
virtual representative of the nonparty.’ ” Illinois Non-Profit
Risk Management Ass’n v. Human Service Center, 884
N.E.2d 700, 721 (Ill. App. 2008) (citations omitted). “Even
if a plaintiff’s right to relief arises from what is
realistically viewed as a single episode, if it is a right
against multiple parties—joint tortfeasors, if the right
arises under tort law—he needn’t join them in one suit,
unless there is privity among those parties, for in
that event separate suits against them are treated as the
equivalent of separate suits against the same party. ‘Priv-
ity’ in this context means that because the parties have
by virtue of contract or otherwise identical interests, a
claim or defense by one is equivalent to a claim or defense
by all.” Manicki v. Zeilmann, 443 F.3d 922, 926 (7th Cir.
2006) (citations omitted) (Illinois law). Again, that seems
12 No. 07-3336
a good description of the master-servant case. And there
are cases that hold explicitly that an agent and his
principal are in privity, e.g., McKinney v. City of East St.
Louis, 188 N.E.2d 341, 343 (Ill. App. 1963); Garcia v. Village
of Mt. Prospect, 360 F.3d 630, 636 (7th Cir. 2004) (Illinois
law), and the master-servant relationship is a standard
example of a principal-agent relationship.
But we needn’t explore the tension (or is it overlap?)
between the concept of privity and the rule of Towns
more deeply; for all else to one side, the complaint does
not disclose an interference on racial grounds with
MDC’s contract with CDAM, and so fails, against Oliver
as against the other defendants, regardless of preclusion.
The longer and more detailed a complaint is, the more
compelling the inference that any omission from it was
deliberate and should bind the plaintiff. See Bender v.
Suburban Hospital, Inc., 159 F.3d 186, 192 (4th Cir. 1998).
A 322-paragraph complaint should be assumed to have
thrown everything the plaintiff had at the defendant,
including the kitchen sink; it ill becomes the plaintiff
later to say, after the defendant and the trial judge have
picked the complaint apart, that the omission from the
complaint of an essential element of a claim should be
deemed inadvertent and inconsequential. The complaint
alleges that the defendants were seeking a “minority
front” to bolster their bidding prospects and had no
intention of sharing the work with the plaintiff if the bid
was successful. To provide favored treatment to black-
owned businesses is to discriminate in favor of rather
than against blacks, and while to cheat them of an oppor-
tunity for that favored treatment is disreputable
No. 07-3336 13
behavior it does not disfavor them vis-à-vis whites; it
removes rather than creates a racial preference. Section
“1981 establishes a rule against discrimination in con-
tracting and does not create any entitlement to be
the beneficiary of a contract reserved for firms owned
by specified racial, sexual, ethnic, or religious groups.”
Rapid Test Products, Inc. v. Durham School Services, Inc.,
460 F.3d 859, 860 (7th Cir. 2006); see Coalition to Defend
Affirmative Action v. Granholm, 473 F.3d 237, 248-50 (6th
Cir. 2006); Coalition for Economic Equity v. Wilson, 122 F.3d
692, 708 (9th Cir. 1997).
This would be a different case if the defendants would
not have cheated similarly situated whites, for example,
white women. (Woman-owned businesses can also seek
affirmative-action set asides to improve their prospects
of obtaining contracts with the City of Chicago.) Imagine
the following case. An unscrupulous contractor who
dupes a minority-owned business into serving as a
“minority front,” with a false promise that it would share
in the contractor’s contract with the City, because their
owners, employees, or subcontractors are black has
deprived the business of a contractual opportunity
because of race. But if the unscrupulous contractor
would if he could dupe any business that qualifies for a
set aside (it might be a business owned by women, by
disabled persons, or perhaps even by veterans), then he
is not discriminating on racial grounds when he dupes
the minority-owned business. He is indifferent to the
race of his victims; all he cares about is whether they can
help him get a contract by virtue of their qualifying to
participate in a set-aside program and if he gets the
14 No. 07-3336
contract whether he can then stiff them. That is this case.
There is no suggestion that the defendants want to
make life difficult for blacks; they would have been happy
to dupe a “woman front” rather than a “minority front.”
The section 1981 count of the complaint, as summarized
by the plaintiffs, alleges that “the Defendants exploited
the Plaintiff corporation’s Minority Business Enterprise
status by inducing the Plaintiffs to form a Joint Venture
with the Defendants’ corporations for the purpose of
obtaining contracts from the Chicago Housing Authority,
and then using their financial clout to force the Plaintiff-
Appellants into the role of being a mere minority front.
The Plaintiff-Appellants further alleged that under this
scheme, the Defendant-Appellees took all of the profits
from the Joint Venture for themselves, despite the fact
that the Plaintiffs’ corporation was legally a 51% owner
of the Joint Venture.” This is an accusation of greed, not
of racial discrimination. The defendants in their brief so
characterized it, and the plaintiffs in their reply brief
did not quarrel with the characterization.
The judgment of dismissal is
A FFIRMED.
11-10-08