Chicago Title Land Trust Co. v. Potash Corp. of Saskatchewan Sales Ltd. , 664 F.3d 1075 ( 2011 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 11-2374
C HICAGO T ITLE L AND T RUST C OMPANY, as Trustee,
H ARMS R OAD A SSOCIATES, and M ARK G OODMAN,
Plaintiffs-Appellants,
v.
P OTASH C ORPORATION OF S ASKATCHEWAN S ALES
L IMITED, PCS S ALES (C ANADA), INC., and P OTASH
C ORPORATION OF S ASKATCHEWAN, INC.,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 1:10-cv-05344—Elaine E. Bucklo, Judge.
A RGUED N OVEMBER 30, 2011—D ECIDED D ECEMBER 27, 2011
Before M ANION, W ILLIAMS, and T INDER, Circuit Judges.
T INDER, Circuit Judge. After losing two suits in state
court on claims related to a lease dispute, plaintiffs
now try their luck in federal court. But, obviously, the
move to federal court has not erased the prior state court
2 No. 11-2374
judgments. Because at least one of those prior judgments
was on the merits, concerned the same parties, and the
same cause of action, this action is barred by res judicata.
The district court reached that conclusion based on
both prior suits. We affirm, but our decision relies on
only one of the state suits—the so-called “Individual
Suit.” Convinced that the adjudication of the Indi-
vidual Suit compels us to affirm, we don’t need to
address whether the other state suit—the “Corporate
Suit”—requires the same. Single or double res judicata,
the effect is identical. Plaintiffs’ action is barred.
In 1995, PCS Sales signed a 10-year lease with Chicago
Title’s predecessor-in-interest, American National, for
space in a Skokie, Illinois office building. PCS Sales oc-
cupied approximately 15,000 square feet, or about 20%
of the rentable space. In 1999, the corporate parent of
PCS Sales, Potash Corporation of Saskatchewan, Inc.,
decided to consolidate various U.S. operations in one
location and therefore needed much more space, up to
an additional 60,000 square feet. As lease negotiations
got underway, Potash Corp.’s CEO, William Doyle al-
legedly assured plaintiffs there would be a deal and
that defendants should not rent to anybody else.
Needless to say, negotiations failed. One of the problems
was a disagreement about the meaning of the lease’s
early termination clause, Paragraph 30:
If at the end of the fifth (5th) year of the lease
Tenant shall require additional space of not less
than 40% of Tenant’s current leased spaced and
Landlord is unable to provide such (contiguous
No. 11-2374 3
space accessed via stairwell to either the third
floor or the fifth floor) within eight (8) months of
notice from Tenant of expansion needs, then
Tenant shall have the option to cancel this Lease
upon at least ninety (90) days prior written
notice to Landlord.
Defendants believe Paragraph 30 gave them a right to
early termination only if they requested at least 40% more
space and plaintiffs could not provide it. Plaintiffs under-
stand Paragraph 30 as having set a limit of 40% on the
additional space they were bound to provide.
In line with defendants’ interpretation of Paragraph 30,
in January 2000, PCS Sales sent written confirmation
that it wanted at least 40% more space. That letter
prompted Mark Goodman, the managing agent of
Harms Road—plaintiff and beneficiary of the land trust
held by Chicago Title—to tell Doyle that cancellation
would kill the building. In response, Doyle allegedly
told Goodman to ignore the letter and that PCS Sales
would meet its obligations under the lease. PCS Sales
began looking for a sublessor. In August 2000, PCS
Sales general counsel, John Hampton, sent an internal
memorandum stating that PCS Sales should consider
invoking the cancellation clause. Soon after, PCS Sales
vacated the building but continued paying rent and
continued looking for a sublessor. In December 2000,
PCS Sales sent written confirmation that no additional
space had been offered and that it was exercising its
option to cancel the lease under Paragraph 30, effective
March 15, 2001.
4 No. 11-2374
In March 2001, plaintiffs filed their first state court
suit, the Corporate Suit: American National sued PCS
Sales and Potash Corp. for breach of lease, breach of
guaranty and, after amendment, consequential damages
and fraud. Amended complaints also added Harms
Road as a plaintiff. Defendants won, but only after
seven years and three rounds of summary judgment: In
2004, on consequential damages; in 2007, on fraud; and
finally, in 2008, on standing. American National didn’t
have standing because it had already sold its trust
business to LaSalle Bank by the time the suit was filed.
Adding Harms Road as a co-plaintiff didn’t solve the
problem because Harms Road didn’t have standing at
the time of filing either. It had already defaulted on the
mortgage for the Skokie building and that divested it
of any right to rents. The Illinois Appellate Court
affirmed based on standing.
In 2004, while the Corporate Suit was pending,
American National and Harms Road filed the Individual
Suit, alleging fraud against defendants’ CEO (Doyle) and
general counsel (Hampton). In September 2005, Doyle
and Hampton’s motion to dismiss for failure to state a
claim was granted, but the complaint was dismissed
without prejudice. The court gave the plaintiffs “28 days
to re-plead, to and including October 21, 2005.” But
plaintiffs did nothing. At a status hearing two and a
half years later, the suit was dismissed with prejudice.
Plaintiffs moved to vacate the dismissal with prejudice
and to have a new judge consider the ruling. They got
a new judge but, reviewing de novo, he agreed with
the first. The dismissal was affirmed on appeal.
No. 11-2374 5
In 2010, plaintiffs filed this diversity suit, again
bringing claims for breach of lease, breach of guaranty,
and fraud. The district court granted defendants’ motion
to dismiss based on res judicata, citing the judgments in
the Corporate Suit and the Individual Suit. The district
court also concluded that plaintiffs failed to state a
claim for fraud. Plaintiffs’ motion for reconsideration
was denied and this appeal followed.
A dismissal on res judicata grounds is reviewed de
novo. Czarniecki v. City of Chicago, 633 F.3d 545, 548
(7th Cir. 2011). Because the prior adjudication was in
Illinois state court, we apply Illinois res judicata princi-
ples. Rockford Mut. Ins. Co. v. Amerisure Ins. Co., 925 F.2d
193, 195 (7th Cir. 1991). For res judicata to apply, there
must be (1) a final judgment on the merits rendered by a
court of competent jurisdiction, (2) the same cause of
action, and (3) the same parties or their “privies.” Hudson
v. City of Chicago, 889 N.E.2d 210, 215 (Ill. 2008). “If the
three elements necessary to invoke res judicata are pres-
ent, res judicata will bar not only every matter that
was actually determined in the first suit, but also every
matter that might have been raised and determined
in that suit.” Id. at 217 (quoting Rein v. David A. Noyes &
Co., 665 N.E.2d 1199, 1205 (Ill. 1996)). “The purpose of
res judicata is to promote judicial economy by re-
quiring parties to litigate, in one case, all rights arising
out of the same set of operative facts . . . .” River Park, Inc.
v. City of Highland Park, 703 N.E.2d 883, 896 (Ill. 1998)
(internal quotation omitted).
Plaintiffs’ appeal focuses on the district court’s con-
clusion that the judgment in the Corporate Suit—based
6 No. 11-2374
ultimately on standing—was a judgment on the merits.
Because under Illinois law standing must be raised as
an affirmative defense and “do[es] not implicate . . .
subject matter jurisdiction,” Lebron v. Gottlieb Mem’l Hosp.,
930 N.E.2d 895, 916 (Ill. 2010), the district court had
reason to reach that conclusion. But there is no need for
us to consider that knotty question of Illinois law
because, as the district court also concluded, plaintiffs’
claim is equally barred by the judgment in the
Individual Suit. We think that is correct, so we begin
and end our analysis with the Individual Suit.
Judgment on the Merits. “Dismissal with prejudice for
failure to state a claim is . . . tantamount to an adjudica-
tion on the merits.” Du Page Forklift Serv., Inc. v. Material
Handling Servs., Inc., 744 N.E.2d 845, 852 (Ill. 2001);
Nowak v. St. Rita High Sch., 757 N.E.2d 471, 477 (Ill.
2001). And that was the result in the Individual Suit:
In 2005, when the state trial court concluded that plain-
tiffs had failed to state a claim for fraud against Doyle
and Hampton, the Individual Suit was dismissed with-
out prejudice and plaintiffs were given four weeks to
amend. As of 2008, plaintiffs had done nothing and the
Individual Suit was dismissed with prejudice. The
Illinois Court of Appeals affirmed, concluding that
the trial court made no error because plaintiffs’ “allega-
tions are inadequate to plead fraud against the
individual defendants.”
Same Cause of Action. Illinois uses a transactional test
to decide what counts as the same cause of action. Ac-
cording to that test, “separate claims will be considered
No. 11-2374 7
the same cause of action for purposes of res judicata
if they arise from a single group of operative facts, re-
gardless of whether they assert different theories of
relief. . . . [T]he transactional test permits claims to be
considered part of the same cause of action even if there
is not a substantial overlap of evidence, so long as
they arise from the same transaction.” River Park,
703 N.E.2d at 893. What factual grouping constitutes
a transaction or a “series of connected transactions” is
to be determined “pragmatically.” Id. In the Individual
Suit, plaintiffs alleged fraud against Doyle and Hampton
for their representations about PCS Sales’ intentions
with regard to the lease. In this case, plaintiffs again
allege fraud and support their claim by citing representa-
tions made by Doyle and Hampton. And all counts,
including the claims for breach of lease and breach of
guaranty, concern the same statements by Doyle and
Hampton, Paragraph 30 of the lease, and whether de-
fendants had the right to cancel because of an unsatis-
fied request for additional space. As with the first res
judicata consideration, this is not a close call: Under
Illinois’ transactional test, the plaintiffs have only one
cause of action.
Same Parties or Privies. “Privity is said to exist between
parties who adequately represent the same legal inter-
ests.” People ex rel. Burris v. Progressive Land Developers,
602 N.E.2d 820, 825 (Ill. 1992) (internal quotation omit-
ted). “It is the identity of interest that controls in deter-
mining privity, not the nominal identity of the parties.”
Id. at 826. The privity analysis for the plaintiffs is straight-
8 No. 11-2374
forward: Harms Road was a plaintiff in the Individual
Suit and is a plaintiff in this case. Defendants (wisely)
do not dispute that Harms Road is in privity with its
land trustee, Chicago Title, and its managing agent,
Mark Goodman. On the defendants’ side, Doyle and
Hampton are corporate officers of PCS Sales. Under
Illinois law, corporate officers are in privity with their
employer for the purpose of res judicata “if the prior
action concerned a matter within the agency.” Atherton v.
Conn. Gen. Life Ins. Co., 955 N.E.2d 656, 660 (Ill. App. Ct.
2011). In the Individual Suit, plaintiffs alleged that Doyle
and Hampton fraudulently misrepresented their em-
ployer’s intentions. Whether representation or misrep-
resentation, managing PCS Sales’ lease for office space
and considering its legal rights and obligations under
the lease were matters squarely “within the agency.”
The third res judicata requirement is therefore met.
As mentioned, “[i]f the three elements necessary to
invoke res judicata are present, res judicata will bar not
only every matter that was actually determined in the
first suit, but also every matter that might have been raised
and determined in that suit.” Hudson, 889 N.E.2d at 215(quoting Rein, 665 N.E.2d at 1205 (emphasis added)).
Plaintiffs argue that res judicata should not be applied
because they could not have sued Doyle and Hampton
for breach—individual officers are generally not per-
sonally liable on corporate contracts. Zahl v. Krupa,
927 N.E.2d 262, 278 (Ill. App. Ct. 2010). Moreover, plain-
tiffs assert, the Individual Suit and Corporate Suit
were “already consolidated” in 2005 and, therefore,
No. 11-2374 9
any attempt to add the corporate defendants to the Indi-
vidual Suit would have failed under the rules of Illinois
civil procedure.
First, we believe it is misleading for plaintiffs to
assert that the Individual Suit and Corporate Suit were
consolidated, as if the proceedings in one had bearing
on the other. There’s absolutely no evidence of that.
The Individual Suit and the Corporate Suit were
separately filed (years apart), separately decided, sepa-
rately appealed, and separately affirmed. It is true that
the Individual Suit was assigned to Judge Goldberg to
“pend with a related case.” And that related case was,
of course, the Corporate Suit. But putting two cases
involving the same facts on a single judge’s docket is
not to consolidate them, at least not in any way relevant
to this appeal.
That said, it is true that with the Corporate Suit
pending, it would have been odd for plaintiffs to add
the corporate defendants to the Individual Suit to
enable claims for breach. Such an amendment may
have even been impossible without first dismissing
the Corporate Suit. But that procedural difficulty is
irrelevant to our res judicata analysis. It was plaintiffs’
burden to amend or dismiss their complaints as necessary
to get their entire cause of action in one suit. See Doe v.
Gleicher, 911 N.E.2d 532, 540 (Ill. App. Ct. 2009). In short,
plaintiffs’ arguments based on procedural obstacles to
their breach claims are completely unpersuasive
because their “quandary here arises from their decision
to split their lawsuit into separate actions.” Rein, 665
10 No. 11-2374
N.E.2d at 1206. Claim splitting is not a way around res
judicata. To the contrary, “[t]he principle that res judicata
prohibits a party from later seeking relief on the basis
of issues which might have been raised in the prior action
also prevents a litigant from splitting a single cause
of action into more than one proceeding.” Id. Under Illi-
nois’ fact-based transactional test, the plaintiffs had one
cause of action. They decided to split it and bring
their individual and corporate claims separately. The
result they now face—their entire cause of action is
barred by res judicata based on the judgment in the
Individual Suit—was a risk inherent in their litigation
strategy.
No exceptions disturb this conclusion. “[R]es judicata
will not be applied where it would be fundamentally
unfair to do so.” Nowak, 757 N.E.2d at 477. But, if
anything, the equities are against these plaintiffs. In
addition to promoting judicial economy, res judicata
protects defendants from plaintiffs who split their
claims into multiple actions. Hudson, 889 N.E.2d at 221.
And that’s just what these plaintiffs did—they split
their cause of action—and they can’t make an argument
for “fundamental unfairness” without ignoring that
basic fact. There are exceptions to the rule against claim
splitting—if, for instance, the defendant allows the
claims to be split or if claims in a successive suit could
not have been made in a previous one because of a re-
striction on the court’s subject matter jurisdiction—but
none of the exceptions apply here and plaintiffs make
no argument that they do. See id. at 216.
No. 11-2374 11
Finally, plaintiffs ask us to certify questions to the
Illinois Supreme Court. Because their proposed questions
relate to the Corporate Suit and do not control the
outcome of this appeal, their motion is D ENIED.
The judgment of the district court is A FFIRMED.
12-27-11