Appeal from Circuit Court of Macon County. No. 94CH38. Honorable John L. Davis, Judge Presiding.
As Corrected March 24, 1997.
Honorable Robert W. Cook, J., Honorable Robert J. Steigmann, P.j. - Concur, Honorable Rita B. Garman, J. - Concur. Justice Cook delivered the opinion of the court.
The opinion of the court was delivered by: Cook
JUSTICE COOK delivered the opinion of the court:
Diversified Financial Systems (DFS) filed this mortgage foreclosure suit in March 1994. Seventeen of the eighteen defendants (all but Magna Bank) moved for summary judgment on the grounds they had been absolved of indebtedness on the underlying notes in a federal lawsuit involving DFS' predecessor in interest. Accordingly, they argued, this suit was barred as res judicata. The trial court granted the motion. DFS appeals. We reverse and remand.
The case on which defendants base their res judicata defense is Jackson v. First National Bank, slip op., (Nos. 88-2273, 88-2275, 88-2276, 88-2290), (Jackson), filed in the United States District Court for the Central District of Illinois, Danville. The record before us does not indicate the nature of the complaint in Jackson, but it is uncontroverted that the Federal Deposit Insurance Corporation (FDIC) was a defendant. In May 1989 FDIC filed a counterclaim for the amount owed on certain promissory notes. All but one of the defendants in this case were counterdefendants in Jackson (the exception is Magna Bank), and the notes on which FDIC counterclaimed were those underlying the mortgage which DFS is now attempting to foreclose. In November 1993, while Jackson was still pending, FDIC "bulk sold" the notes to DFS.
After learning of the sale in December 1993, counsel for FDIC filed a motion to withdraw from Jackson on the grounds that FDIC had no remaining interest in the case. On January 13, 1994, it served that motion on opposing counsel and the president of DFS by mail. The motion indicated there were no other motions pending and a trial date had not been set. It "advised" DFS to retain separate counsel and file an appearance in federal court, and stated there would be a hearing on its motion to withdraw on January 19, six days later.
On January 17, two days before the scheduled hearing, several counterdefendants filed a motion to dismiss FDIC's counterclaim pursuant to Rule 12(b) of the Federal Rules of Civil Procedure (Fed. R. Civ. P. 12(b)), because FDIC "no longer had an interest in the subject matter of the instant litigation." Although the motion averred FDIC had sold the notes to DFS, DFS was not served with the motion. On January 20, the federal court granted both motions, dismissing the counterclaim "with prejudice for lack of a plaintiff and for lack of prosecution under Federal Rules of Civil Procedure 16(f), 41(b), and 37(b) [(Fed. Rules Civ. P. 16(f), 41(b), 37(b))]." The court's order indicates only plaintiffs and counterdefendants (not counterplaintiff FDIC and not DFS) appeared at the January 19 hearing.
The elements of res judicata are the same under federal and Illinois law: (1) a final judgment on the merits rendered by a court of competent jurisdiction; (2) identity of cause of action; and (3) identity of parties or their privies. People ex rel. Burris v. Progressive Land Developers, Inc., 151 Ill. 2d 285, 294, 602 N.E.2d 820, 825, 176 Ill. Dec. 874 (1992); Brzostowski v. Laidlaw Waste Systems, Inc., 49 F.3d 337, 338 (7th Cir. 1995). The burden of proof is on the party invoking the doctrine. Torcasso v. Standard Outdoor Sales, Inc., 157 Ill. 2d 484, 491, 626 N.E.2d 225, 228, 193 Ill. Dec. 192 (1993); Appley v. West, 832 F.2d 1021, 1025 (7th Cir. 1987), citing Gilldorn Savings Ass'n v. Commerce Savings Ass'n, 804 F.2d 390, 393 (7th Cir. 1986). The dispute in this case concerns the first and third requirements.
Defendants also make the threshold argument that DFS should be barred from any complaint about the judgment because it did not pursue any remedies in the federal system. Said another way, defendants' argument is that even if DFS was not a party or privy to the federal case, and is accordingly not bound under principles of res judicata, DFS is nevertheless somehow bound by the federal judgment. Defendants argue DFS should have entered the federal case and sought to overturn the judgment that had been entered. We reject that argument. If DFS was not bound under principles of res judicata, DFS was not required to enter the federal case.
I. FDIC WAS NOT DFS' REPRESENTATIVE IN THE FEDERAL CASE
Defendants argue that successors to interests in property are in privity with their transferors, quoting the following language from Schafer v. Robillard, 370 Ill. 92, 100, 17 N.E.2d 963, 967 (1938):
"It is only parties and their privies, in blood or estate, that are estopped by a decree or judgment. Parties to a decree, in the eye of the law, are those, only, who are named as such in the record, and are properly served with process or enter their appearance. A privy in blood or estate is one who derives title to the property in question by descent or purchase. A privy to a judgment or decree is one whose succession to the rights ...