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Bunker Ramo Corp. v. United Business Forms Inc.

decided: July 26, 1983.

BUNKER RAMO CORPORATION, A DELAWARE CORPORATION, PLAINTIFF-APPELLEE,
v.
UNITED BUSINESS FORMS, INC., AN ILLINOIS CORPORATION, AND EDWARD M. REIF, DEFENDANTS-APPELLANTS, AND MARVIN H. CYWAN, DEFENDANT



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 81 C 2530 -- James B. Parsons, Judge.

Cummings, Chief Judge, Wood, Circuit Judge, and Walter E. Hoffman, Senior District Judge.*fn*

Author: Hoffman

HOFFMAN, Senior District Judge.

The plaintiff, Bunker Ramo Corporation (Bunker Ramo), has filed two suits against these defendants for causes of action arising from the same operative facts. This is an interlocutory appeal under 28 U.S.C. § 1292(b) from orders entered by the District Court in the second suit. Defendants appeal from the denial of their motion to dismiss the complaint under the doctrine of res judicata, and from the denial of their motion to dismiss the complaint for lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted.

Plaintiff, Bunker Ramo, is a Delaware corporation with its principal place of business in Illinois. Defendant, United Business Forms (U.B.F.), is an Illinois corporation with its principal place of business in Illinois and manufactures and distributes office and business forms. Defendant, Edward M. Reif, is the president of U.B.F. Defendant, Marvin H. Cywan, is an employee of Amphenol Industrial Division, an unincorporated division of Bunker Ramo. Cywan did not participate in this appeal.

Bunker Ramo alleges that during the years 1970 through 1976 the defendants engaged in a scheme to defraud the company by falsifying purchase orders, invoices, and delivery receipts for business forms that were never delivered but were paid for by Bunker Ramo. Bunker Ramo claims that Cywan ordered business forms from U.B.F. in excess of the amount needed by Bunker Ramo, knowing that the forms would never be delivered. U.B.F. and Reif billed Bunker Ramo for the forms by submitting false invoices. Bunker Ramo paid for the supplies it never received, relying on the false invoices from U.B.F. and Reif, and relying on false delivery receipts filled out by Cywan, which indicated that the forms had been delivered. According to Bunker Ramo, U.B.F. and Reif paid Cywan bribes in excess of $160,000 for his participation in the scheme. Bunker Ramo learned of the scheme in 1980 when Cywan was prosecuted for income tax evasion for failure to report as income the money he received from U.B.F. and Reif.

On August 21, 1980, Bunker Ramo filed the first of the two suits against the defendants. Count VII of the seven count complaint alleged that the defendants' conduct violated section 2(c) of the Robinson-Patman Act, 15 U.S.C. § 13(c).*fn1 The count was brought pursuant to 15 U.S.C. § 15 and jurisdiction was asserted under 28 U.S.C. § 1337. The remaining six counts were asserted under the court's pendent jurisdiction and charged all the defendants with fraudulent misrepresentation, commercial bribery, and conspiracy, and charged Cywan individually with breach of fiduciary duty.

Defendants U.B.F. and Reif moved pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6) to dismiss the complaint for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted. On April 2, 1981, Judge Aspen dismissed the complaint. Bunker Ramo Corp. v. Cywan, 511 F. Supp. 531 (N.D.Ill. 1981).

On May 5, 1981, Bunker Ramo moved, pursuant to Fed.R.Civ.P. 60(b), for leave to amend the complaint to add new claims which were based on newly discovered facts. In Judge Aspen's absence the Emergency Judge continued the motion until May 12, 1981, when it could be heard by Judge Aspen.

Also on May 5, 1981, apparently fearing that the statute of limitations might run on some of their claims before the request for leave to file an amended complaint could be acted upon, Bunker Ramo filed the second suit against the defendants. Counts I and II of this seven count complaint allege that the defendant's conduct violated Title IX of the Organized Crime Control Act of 1970 (Racketeer Influences and Corrupt Organizations), Pub.L.No. 91-452, 84 Stat. 922, 941-948 (codified at 18 U.S.C. §§ 1961-1968) [hereinafter RICO]. The RICO counts were brought pursuant to 18 U.S.C. § 1964(c). Count III of the complaint alleges that the defendants' conduct violated section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. The Sherman Antitrust Act claim was brought pursuant to 15 U.S.C. § 15. Jurisdiction for the federal claims was asserted under 28 U.S.C. §§ 1331 and 1337. The remaining counts were asserted under the court's pendent jurisdiction and charge all the defendants with fraudulent misrepresentation and conspiracy, and charge Cywan individually with breach of fiduciary duty.

On May 12, 1981, Judge Aspen denied Bunker Ramo's Fed.R.Civ.P. 60(b) motion for leave to file an amended complaint in the first suit because the subject matter of the proposed amended complaint was covered by the complaint in the second suit.

On June 26, 1981, defendants U.B.F. and Reif filed a motion to dismiss the second suit on the ground that the action was barred by the doctrine of res judicata. Defendant Cywan joined the motion on July 24, 1981. On August 5, 1981, Judge Aspen denied the motion to dismiss the action on res judicata grounds. U.B.F. and Reif, on August 14, 1981, moved pursuant to Fed.R.Civ.P. 59(e) to amend Judge Aspen's order of August 5, 1981, to allow an immediate appeal. Shortly thereafter the case was reassigned to Judge Parsons.

On September 11, 1981, Cywan filed a motion to dismiss the second complaint urging several grounds for dismissal. On September 14, 1981, U.B.F. and Reif moved pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6) to dismiss the complaint. U.B.F. and Reif argued that the court lacked subject matter jurisdiction to hear the RICO and Sherman Antitrust claims and that, even if the court had jurisdiction, the complaint failed to state a claim upon which relief can be granted. Additionally, they argued that the pendent claims should be dismissed for lack of subject matter jurisdiction.

On April 30, 1982, Judge Parsons denied defendants' motions to dismiss the complaint. The court did amend the order of August 5, 1981, to allow an interlocutory appeal of the decisions. On July 1, 1982, this court granted U.B.F. and Reif permission to appeal the orders of August 5, 1981, and April 30, 1982.

I. RES JUDICATA

Defendants first appeal Judge Aspen's order of August 5, 1981, denying their motion to dismiss the second suit as barred by res judicata.

The minute order entered by Judge Aspen on August 5, 1981, denying defendants' motion to dismiss the second suit stated:

Defendants' motion to dismiss this action as barred by principles of res judicata is denied. This Court's prior dismissal of Bunker Ramo Corporation's lawsuit against these same defendants for lack of subject matter jurisdiction, Bunker Ramo Corporation v. Cywan, 511 F. Supp. 531 (N.D.Ill. 1981), was not on the merits as that term is used within the context of the res judicata doctrine. Accordingly, our prior order only precludes relitigation of the jurisdictional and justiciability issues decided therein.

The minute order Judge Aspen entered on April 2, 1981, dismissing the first suit, clearly was based on a lack of subject matter jurisdiction. It stated:

The section 2(c) commercial bribery claim will be dismissed for lack of subject matter jurisdiction. The pendent claims against UBF, Reif, and Cywan are dismissed without prejudice to a subsequent action in state court.

The Memorandum Opinion and Order Judge Aspen entered on the same day, however, is not as clear. Although in the Memorandum Opinion Judge Aspen ultimately dismissed the complaint for a lack of subject matter jurisdiction, he also reasoned that the complaint was defective because it did not allege the type of competitive injury that is cognizable under the Robinson-Patman Act. Bunker Ramo Corp. v. Cywan, 511 F. Supp. 531, 533-34 (N.D.Ill. 1981). The Memorandum Opinion and Order stated:

In the case at bar, Bunker Ramo, a manufacturer of electronic and mechanical products, does not compete in any sense of the term with UBF, a distributor of office and business forms. Their relationship is one of buyer and seller, and regardless of any common law cause of action Bunker Ramo may have against UBF or Reif for fraudulent misrepresentation, commercial bribery, or conspiracy to induce a breach of fiduciary duty, the clear import of the cases cited above is that Bunker Ramo's injury is not cognizable under section 2(c) of the Robinson-Patman Act. . . .

Accordingly, the section 2(c) commercial bribery claim will be dismissed for lack of subject matter jurisdiction. It is so ordered.

In the absence of a proper federal claim, the Court declines to exercise jurisdiction over the pendent state law claims. Courts and commentators generally agree that when a federal claim is dismissed for lack of subject matter jurisdiction, the court need not retain the pendent state claims in the absence of any prejudice to the parties or the commitment of significant judicial time and effort.

Id. at 534.

A valid final judgment on the merits is res judicata and is an absolute bar to a subsequent action between the same parties on the same cause of action. Federated Department Stores, Inc. v. Moitie, 452 U.S. 394, 398, 69 L. Ed. 2d 103, 101 S. Ct. 2424 (1981); Commissioner v. Sunnen, 333 U.S. 591, 597, 92 L. Ed. 898, 68 S. Ct. 715 (1948); Harper Plastics, Inc. v. Amoco Chemicals Corp., 657 F.2d 939, 943-45 (7th Cir. 1981); Trujillo v. Colorado, 649 F.2d 823, 825 (10th Cir. 1981). The prior judgment is conclusive not only as to the issues that were decided but also as to issues that could have been raised. Federated Department Stores, Inc., 452 U.S. at 398; Harper Plastics, Inc., 657 F.2d at 945. 1B Moore's Federal Practice para. 0.405[1] (2d ed. 1982).

A final judgment, however, will have full res judicata effect only if it is on the merits. Harper Plastics, Inc., 657 F.2d at 943; FTC v. Food Town Stores, Inc., 547 F.2d 247, 249 (4th Cir. 1977); Thomas v. Consolidation Coal Co., 380 F.2d 69, 79 (4th Cir. 1967). See Restatement (Second) of Judgments § 19 comment a (1982). A dismissal other than one on the merits merely precludes relitigation of the issues decided. Harper Plastics, Inc., 657 F.2d at 943; 1B Moore's Federal Practice para. 0.405[1]. A dismissal for lack of subject matter jurisdiction is not on the merits and consequently will not bar a later suit. Costello v. United States, 365 U.S. 265, 284-88, 5 L. Ed. 2d 551, 81 S. Ct. 534 (1961); Harper Plastics, Inc., 657 F.2d at 943; Boone v. Kurtz, 617 F.2d 435, 436 (5th Cir. 1980). See Restatement (Second) of Judgments §§ 20(1)(a), 13 comment d. A dismissal for failure to state a claim upon which relief can be granted, however, is a dismissal on the merits and is res judicata. Federated Department Stores, Inc., 452 U.S. at 399 n.3. See Restatement (Second) of Judgments § 19 comment d; 1B Moore's Federal Practice para. 0.409[1].

The defendants argue that Judge Aspen's characterization that the April 2, 1981, dismissal "was not on the merits as the term is used within the context of the res judicata doctrine" is incorrect. They argue that on April 2, 1981, Judge Aspen issued two holdings and not just one. The first holding, that Bunker Ramo had not alleged an injury cognizable under the Robinson-Patman Act, was a ruling on the merits and thus res judicata. The second holding, that the court lacked subject matter jurisdiction, was not on the merits. The defendants admit in their opening brief that Judge Aspen was correct in dismissing the first suit for lack of subject matter jurisdiction. Appellant's Opening Brief at 15. The defendants also argue that reading Judge Aspen's opinion as a whole, Judge Aspen examined the merits of Bunker Ramo's claim and consequently it should receive res judicata effect. The defendants rely on Federated Department Stores, Inc. v. Moitie, 452 U.S. 394, 69 L. Ed. 2d 103, 101 S. Ct. 2424 (1981), and Harper Plastics, Inc. v. Amoco Chemicals Corp., 657 F.2d 939 (7th Cir. 1981), to support their arguments.

In Federated Department Stores, seven plaintiffs had previously filed antitrust actions against the defendants in the United States District Court for the Northern District of California. The District Court dismissed all of the complaints, "in their entirety" for failure to allege a competitive injury to business or property within the meaning of section 4 of the Clayton Act. 452 U.S. at 396-97. In its Memorandum and Order the District Court stated:

The plaintiffs in these related cases cannot recover treble damages under section 4 of the Clayton Act because they have failed to allege an injury to a sufficient commercial enterprise or business in which they are engaged. Neither are they entitled to injunctive relief under section 16 since they are not irreparably injured. Therefore,

IT IS HEREBY ORDERED that this matter, in its entirety, be and is dismissed for failure of the plaintiffs to ...


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