Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 76 C 1304 -- J. Sam Perry, Judge.
Pell, Wood, and Cudahy, Circuit Judges. Cudahy, Circuit Judge, concurring in part and dissenting in part.
In this diversity case, the plaintiff, Albert J. Diaz, appeals from the district court's dismissal of his claim for commissions on sales completed after termination of his employment. The principal issues on appeal are whether the judge below properly invoked the doctrine of res judicata and whether he correctly interpreted the employment contract between the parties as barring Diaz's claim.
Diaz began negotiating an employment contract with Indian Head, Inc. (Indian Head) in late January, 1973. Diaz was then employed by National Cash Register Corporation (NCR). Indian Head was contemplating the acquisition of NCR's micropublishing assets. These assets consisted of master negatives of books and periodicals marketed on microcards and microfiche and commonly referred to as "titles."
Diaz began working for Indian Head on March 15, 1973, the date Indian Head acquired Microcard Editions from NCR. Diaz's title was "Vice President and Publisher of Microcard Editions." At trial, Diaz described his position as one requiring the performance of "such duties and services of an executive and managerial nature as this position entails." Indian Head filled orders from the "1972-3 NCR Microcard Editions Catalogue of Publications" (1972-3 Catalogue), which Diaz had compiled during his previous employment with NCR. Diaz selected 160 new titles to be added to the 1973-4 and 1975 annual catalogues.*fn1 Although Diaz was informally referred to as the "title picker," he testified at trial that the actual selections were made by someone else. It is undisputed that Diaz's responsibilities did not include solicitation of orders.
A formal employment agreement between Diaz and Indian Head was not signed until July, 1973. It was backdated, however, to the date Diaz began working for the company. The contract, which was prepared by Indian Head's attorney and reflected concerns expressed by Diaz during the negotiation period, recited Diaz's title and duties as described above. It also outlined, in paragraph three, the terms relevant to Diaz's compensation which included salary and commission. Paragraph three also provided that Diaz's compensation was subject to revision at the close of the 1973 fiscal year.
Paragraph four of the contract provided that, on ninety days notice by either party, Diaz could be put on a part-time consulting basis "for a period of eighteen months commencing upon the termination of the Employee's employment on a full-time basis." The part-time consulting duties were to be compensated at a rate of $1,000 per month if Diaz initiated the arrangement.
Paragraph five of the agreement provided that Diaz should not engage indirectly or directly in any business competitive with Microcard Editions during the time he was either a full-time employee or consultant to Indian Head.
Despite the fact that the employment agreement was not signed until July, 1973, Diaz began receiving commissions in March, 1973. These commissions were based on sales made from the 1972-3 Catalogue and included commissions on orders booked by Microcard Editions before it was acquired by Indian Head. Diaz's commissions were usually calculated on the basis of net delivered and invoiced sales. Orders received but not yet shipped were not generally included.
In January, 1974, however, Diaz received a commission statement that included $50,000 for sales not completed as of the end of November. The previous month Diaz had expressed some dissatisfaction with his employment arrangement and, in early January, had received an offer of employment from a competitor of Indian Head's. Indian Head characterized the $50,000 commission as a "goodwill gesture" indicative of the company's desire for Diaz to remain in its employ.
Later in January, 1974, Diaz was told that if he stayed with Indian Head beyond December 1, 1974, he would probably be put on a salary plus bonus scheme of compensation and would no longer be paid on a commission basis. In February, 1974, Diaz inquired about his commission rate for the 1974 fiscal year. He was told that the rate would be lowered. According to Indian Head, this change was made, pursuant to the power reserved in the contract, because Indian Head contemplated a significant increase in sales generated by salesmen. The definition of "net sales" in Diaz's contract did not provide for salesmen's commissions to be deducted before the commission was calculated. Had Diaz's commission rate remained constant, he might well have received what the company viewed as an unwarranted windfall.
A few days after this conversation, Diaz resigned his position with Indian Head, effective May 10, 1974, and accepted an offer of employment from Northern Engraving Company (Northern).
Diaz received his last monthly commission statement from Indian Head on or about June 20, 1974. Indian Head then began paying the $1,000 per month consulting fee provided for in paragraph five of the contract. Diaz never cashed these consulting fee checks.
In August, 1974, Diaz commenced suit in federal district court to have the eighteen-month noncompetition clause in the contract declared unenforceable (Diaz I). In its order, reported at 402 F. Supp. 111 (N.D. Ill. 1975), the district court held that the clause was unenforceable insofar as it precluded Diaz's competing with Indian Head once his full-time employment with that company terminated. The district judge also held that Diaz was not obligated to perform any consulting services for Indian Head. Diaz was ordered to return all the consulting fee checks to Indian Head.
Indian Head appealed this order. Diaz cross-appealed on the ground that he should have been afforded timely notice and an opportunity to present evidence regarding return of the checks. On September 2, 1975, this court affirmed Judge Decker's order in an unpublished order.
On April 6, 1976, Diaz filed the present lawsuit (Diaz II), seeking additional compensation for commissionable items selected by Diaz, the sale of which was consummated after termination of his employment with Indian Head. The commission claim falls into two categories. Diaz claims $5,363.63 based on sales booked prior to May 10, 1974 but shipped thereafter. He also claims commissions on sales made from the 1973-4 and 1975 catalogues that were booked after he left Indian Head. Including these latter commissions, Diaz claims a total of $105,186.59.
Appearing before Judge Flaum, Indian Head moved to dismiss Diaz's suit in May, 1976, on the grounds that the action was barred by res judicata and that the employment agreement demonstrated on its face that Diaz was not entitled to additional compensation. The trial judge denied this motion in December, 1976, finding that Diaz II was "based on a separate and distinct cause of action even though it relate[d] to the same contract involved in [ Diaz I ]," and that Diaz had stated a claim upon which relief could be granted.*fn2
In August, 1977, Indian Head moved to join Northern as the real party in interest, arguing that Northern would be entitled to any recovery Diaz obtained from Indian Head. Judge Flaum denied this motion.
Diaz II was reassigned to Judge Perry for trial. The trial was held in March, 1981. At the close of the plaintiff's case, Indian Head moved for dismissal pursuant to Rule 41(b) of the Federal Rules of Civil Procedure and orally renewed its motion to dismiss on the ground of res judicata. Indian Head did not renew its motion regarding Northern.
On September 18, 1981, Judge Perry dismissed Diaz's action on the merits. He held that the suit was barred by res judicata and that Diaz had no interest in the action because Northern would be the sole beneficiary of any judgment against Indian Head.*fn3 Judge Perry also held that the employment agreement was unambiguous and barred any claim for commissions on sales completed after Diaz's departure from Indian Head.
The doctrine of res judicata extends "not only to those matters actually determined in the prior case, but also to matters properly involved which could have been raised in the prior suit." Gasbarra v. Park-Ohio Industries, Inc., 655 F.2d 119, 121 (7th Cir. 1981). As the appellee concedes, Diaz did not litigate his present claim for post-termination commissions in his earlier suit. The issue, therefore, is whether the claim now raised arises out of the "same basic factual situation," Himel v. Continental Illinois National Bank and Trust Co., 596 F.2d 205, 209 (7th Cir. 1979) (citation omitted), as did Diaz I and could properly have been raised in the earlier suit. Accord, Gasbarra, 655 F.2d at 121 (the test is whether " 'the entire amount claimed to be due plaintiff arises out of one and the same act or contract. '" (quoting Ernest Freeman & Co. v. Robert G. Regan Co., 332 Ill. App. 637, 645, 76 N.E.2d 514, 517-18 (1947)).
Diaz poses three arguments against the applicability of res judicata. First, he claims that Judge Flaum's earlier rulings that Diaz I was not a bar to Diaz II constitute the law of the case and should not have been disturbed by Judge Perry. Second, the appellant urges that he could not have brought his claim for post-termination commissions at the time of Diaz I because Indian Head's liability was impossible to calculate until after the trial of the first case concluded. Third, Diaz contends that the only issue presented in Diaz I was the validity of the noncompetition clause*fn4 and, therefore, the issues raised in the second suit were not and could not have been litigated earlier. We will address each of these contentions in turn.
Judge Flaum's rulings that res judicata does not bar Diaz II were interlocutory and could be "reconsidered and reviewed at any time prior to final judgment." Pittston-Luzerne Corp. v. United States, 86 F. Supp. 460, 461 (M.D. Pa. ...