The Seventh Circuit employs the "transaction test" to determine whether
there is an identity between causes of action for res judicata purposes.
Andersen v. Chrysler Corp., 99 F.3d 846, 852 (7th Cir. 1996); Car
Carriers, Inc. v. Ford Motor Co., 789 F.2d 589
, 593 (7th Cir. 1986).
Under this test, once "a transaction has caused injury, all claims
arising from that transaction must be brought in one suit or be lost."
Car Carriers, 789 F.2d at 593. As Judge Posner has pointed out, "the
standard for when two claims are so closely related that they constitute
the same transaction for purposes of res judicata is not as clear as it
might be." Herrmann v. Cencom Cable Associates, Inc., 999 F.2d 223
(7th 1993). However, the Seventh Circuit has made it clear that the
transaction test "does not require an identity of legal theory or of
facts." Okoro v. Bohman, 164 F.3d 1059
, 1062 (7th Cir. 1999). "It would not matter that
the prior suits charged different violations of law, alleged different
facts, and sought different relief. Under the federal common law of res
judicata, a subsequent suit is barred if the claim on which it is based
arises from the same incident, events, transaction, circumstances, or
other factual nebula as a prior suit that had gone to final judgment."
Id. Section 24(2) of the Restatement (Second) of Judgments provides some
guidance to courts in determining what "factual nebula" forms a single
transaction for purposes of the transaction test:
What factual grouping constitutes a `transaction' . .
.[is] to be determined pragmatically, giving weight to
such considerations as whether the facts are related
in time, space, origin, or motivation, whether they
form a convenient trial unit, and whether their
treatment as a unit conforms to the parties'
expectations or business understanding and usage.
Here, though Fogel's claims allege different violations of law, rely on
some different facts, and seek different relief, they are based on what
is in effect the same transaction: the "firm's" failure to pay Fogel the
deferred compensation he was due upon withdrawal. The firm's obligation
to pay Fogel deferred compensation arose from the same event, his
withdrawal from the firm. The contracts giving rise to that obligation
were signed on the same day and concerned the same subject, the parties'
entitlements to firm assets after reorganization. The injury to Fogel is
the same, insufficient compensation. Furthermore, in his Second Amended
Complaint, Fogel repeatedly treats the deferred compensation due to him
under the P.C. Plan and the L.L.C. Agreement as a single debt. He alleges
that at the time of his withdrawal from the firm in January 2000, "the
deferred compensation owed by the firm to Fogel was determined by the
firm to be $462,570.88." Fogel does not explain in the Second Amended
Complaint that this amount constitutes the total deferred compensation
due to him under both the P.C. Plan and the L.L.C. Agreement. Fogel also alleges that the "firm" still owed him $290,669.19
again representing compensation due under both agreements in
"outstanding deferred compensation" on December 31, 2002. In the Second
Amended Complaint, Fogel also discusses and attaches correspondence from
the L.L.C. informing Fogel that "all existing firm debt obligations would
be satisfied," (Sec. Am. Compl. ¶ 26, Ex. G.) Fogel attaches the same
correspondence in his Demand for Arbitration as support for his claim
that he was owed deferred compensation from the L.L.C. (Def. Mot. For
Determination of Waiver., Ex. A.) All this suggests that the treatment of
the two claims as a unit "conforms to the parties' expectations or
business understanding and usage." Restatement § 24(2). Thus, the court
holds that there is an identity of causes of action between Fogel's
federal fraud claim and his arbitration claim and therefore that res
judicata applies to the arbitration claim.