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Carr v. Tillery

January 12, 2010


Appeals from the United States District Court for the Southern District of Illinois. No. 07-CV-314-David R. Herndon, Chief Judge.

The opinion of the court was delivered by: Posner, Circuit Judge.


Before POSNER, RIPPLE, and WOOD, Circuit Judges.

Rex Carr, a successful class action lawyer in southern Illinois, is locked in mortal combat with his former law partners, the defendants in a RICO case (with a supplemental state-law claim, 28 U.S.C. § 1367) that he brought in federal district court. The dispute is over the division of legal fees in cases handled by the law firm (Carr Korein Tillery, LLC) before it broke up; Carr is seeking some $20 million in compensatory damages alone. The district court dismissed the entire case, supplemental claim and all, under Rule 12(b)(6) (failure to state a claim), on the ground that Carr's claims are precluded by judgments in previous suits by him against the same defendants. Since res judicata is an affirmative defense, the defendant should raise it and then move for judgment on the pleadings under Rule 12(c). Forty One News, Inc. v. County of Lake, 491 F.3d 662, 664 (7th Cir. 2007); McCready v. eBay, Inc., 453 F.3d 882, 892 n. 2 (7th Cir. 2006). The judge thus jumped the gun in dismissing the case under Rule 12(b)(6). But the error is of no consequence. He had before him all he needed in order to be able to rule on the defense, and anyway the plaintiff does not complain about the error.

Carr appeals. The defendants cross-appeal from the denial of their motion for sanctions for what they contend are his abusive litigating tactics. This is Carr's eighth suit against the defendants complaining about the division of fees; a ninth is pending in Missouri; and in at least four other cases that were handled by the law firm before the break up he has filed liens in an attempt to get a bigger share of the fees than the defendants had allotted to him. One of these suits, as we'll see, led this court to sanction Carr for misconduct.

The partners had several agreements concerning allocation of fees; these continued in force when the firm ceased to engage in the practice of law in 2003, though it continued a twilight existence to administer the alloca- tion of fees earned but not yet paid by clients in cases pending when the firm ceased practice. A further agreement was also adopted then. Disputes over the allocation of fees erupted the following year and led to a flurry of suits in an Illinois state court. The disputes were resolved-or so it seemed-by a "Memorandum of Understanding" drafted by Carr and agreed to in April 2004 by the other former partners. The Memorandum specified (in part by adoption of the terms in the previous agreements) how all fees-past, present, and future-would be allocated among the former partners. It provided that when fees came in to the partner who had handled a case, he would pay over the entire amount to the law firm (the shell) for determination of how much each of the other partners was entitled to. The Memorandum also required that the suits be dismissed.

One of the suits was a declaratory judgment action brought by the other partners (the defendants in this case) against Carr. He had filed a counterclaim; and in May 2004, before the suit was dismissed as required by the Memorandum, he amended the counterclaim to add a claim that he had been fraudulently induced to sign the Memorandum of Understanding. More than two years later, in September 2006, the Illinois court in which Carr's suits were pending rejected the counter-claim and entered final judgment, pursuant to the Memorandum, dismissing with prejudice all the pending suits. The judgment was affirmed by the Illinois Appellate Court in December 2007 and Carr did not seek review by the Supreme Court of Illinois.

The complaint in his present suit repeats many of the charges in the 2004 suits, including the charge that he was fraudulently induced to sign the Memorandum of Understanding and that the defendants had violated the previous fee-allocation agreements, which the Memorandum had superseded. All those charges are barred by the dismissal with prejudice of the 2004 suits. The fact that the present suit redescribes the wrongful acts alleged in the earlier ones as predicate acts in support of the RICO claim is irrelevant. You cannot maintain a suit, arising from the same transaction or events underlying a previous suit, simply by a change of legal theory. That is called "claim splitting," and is barred by the doctrine of res judicata. Nowak v. St. Rita High School, 757 N.E.2d 471, 478-79 (Ill. 2001); River Park, Inc. v. City of Highland Park, 703 N.E.2d 883, 893 (Ill. 1998); Curtis v. Lofy, 914 N.E.2d 248, 258-59 (Ill. App. 2009); Brzostowski v. Laidlaw Waste Systems, Inc., 49 F.3d 337, 338-39 (7th Cir. 1995) (Illinois law).

As if this were not enough, those charges (and more, as we'll see) are also barred by Illinois's "one refiling," or, as it is sometimes called, "single refiling," rule. In March and April 2007, while the dismissal of Carr's counterclaim in the earlier litigation was pending on appeal, he filed four lawsuits against the defendants in Illinois state courts. He filed the present suit three weeks after the filing of the fourth state-law suit, and within days of doing so voluntarily dismissed all four suits; the dismissal orders state that the dismissals are without preju-dice. Illinois law provides that a plaintiff who voluntarily dismisses a suit "may commence a new action within one year or within the remaining period of limitation, whichever is greater." 735 ILCS 5/13-217. The Illinois courts interpret this to mean that a plaintiff who voluntarily dismisses a suit may commence only one new action. Timberlake v. Illini Hospital, 676 N.E.2d 634, 636-37 (Ill. 1997); Flesner v. Youngs Development Co., 582 N.E.2d 720, 721 (Ill. 1991); Gendek v. Jehangir, 518 N.E.2d 1051, 1053 (Ill. 1988); Schrager v. Grossman, 752 N.E.2d 1, 4 (Ill. App. 2000); D'Last Corp. v. Ugent, 681 N.E.2d 12, 15-16 (Ill. App. 1997); Ko v. Eljer Industries, Inc., 678 N.E.2d 641, 647-48 (Ill. App. 1997); Eskridge v. Cook County, 577 F.3d 806, 808 (7th Cir. 2009) (Illinois law). It is true that Fanaro v. First National Bank, 513 N.E.2d 1041 (Ill. App. 1987), held the contrary, but it was explicitly rejected by the Supreme Court of Illinois in the Timberlake case.

Carr concedes that the one-refiling rule is applicable to the refiling in a federal court of a suit originally filed in an Illinois state court, because it is a rule of preclusion, like res judicata; and a federal court is required to give "full faith and credit" to records of (including judgments in) state judicial proceedings. 28 U.S.C. § 1738; Kremer v. Chemical Construction Corp., 456 U.S. 461, 466-67 (1982); Allen v. McCurry, 449 U.S. 90, 96 (1980). So if Illinois courts would invoke the one-refiling rule to bar the plaintiff from bringing the present suit in an Illinois state court (as he could have done, because state courts have concurrent jurisdiction with federal courts to enforce RICO), we must do likewise. Cf. McKnight v. Dean, 270 F.3d 513, 518-19 (7th Cir. 2001).

There are two ways of thinking about the application of the rule to this case. One, which is much the less plausible, requires treating the four 2007 suits, insofar as they repeated charges in the 2004 suits, as a first refiling, so that the present suit, which Carr acknowledges arises from the same facts as the state-court suits that he filed and promptly dismissed in 2007, is a second refiling. He argues that the Illinois rule applies only when the first refiled suit is dismissed before the second one is filed; otherwise the second refiled suit isn't really "new." That is not correct, as the Illinois Appellate Court held in Schrager v. Grossman, supra, 752 N.E.2d at 5, and as we noted in Eskridge v. Cook County, supra, 577 F.3d at 807-08. See also Rockford Mutual Ins. Co. v. Blaase, 615 N.E.2d 1333, 1335-36 (Ill. App. 1993). The new action is the action filed later; the date on which the previous action was dismissed is irrelevant. The RICO suit was a new action because it was filed after the state-court suits. Failing without excuse to make up his mind whether he wanted to be in state or federal court, Carr filed five lawsuits in place of a single suit that would have included all the claims in the five separate suits.

But if the four state-court suits filed in 2007 are treated as the first refiling of the 2004 litigation, the Illinois rule bars relitigation in this suit only of claims arising from acts prior to Carr's filing of the counterclaim in May 2004; for the basis on which the Illinois courts decide whether a suit is a refiling is whether, had its predecessor been dismissed with prejudice, it would be barred by principles of res judicata. D'Last Corp. v. Ugent, supra, 681 N.E.2d at 16. (The one-refiling rule is thus the extension of the doctrine of res judicata to a class of cases in which the decision deemed to be res judicata is a dismissal without prejudice.)

The complaint in this present case is not (quite) just a rehash of the 2004 litigation, for it also charges-as do the four state-court suits that the plaintiff filed in 2007-that even if the Memorandum of Understanding is valid and enforceable, as the Illinois state courts have held, the defendants have violated it by not giving the plaintiff the fees to which it entitles him.

The second way of applying the one-refiling rule to this case, and we think the right way in light of both the Illinois case law and the practicalities of the situation, is to treat the first of the four suits filed in 2007 as the first in a series of identical case filed, the second such suit as the first refiling, and the third and fourth suits-and, critically, the present suit-as further refilings, thus barred by the rule. Indeed, this is the only approach in which the one-refiling rule does any work. For if the first filing was the 2004 litigation, the first refiling the four 2007 state-court suits treated as one, and the third (and thus barred) refiling the present suit, the fact that the four 2007 state-court suits were voluntarily dismissed would have no significance; they are just the first refiling of a suit (the 2004 litigation) dismissed with prejudice in September 2006. The onerefiling rule adds nothing to res judicata when the judgment in the first case was with prejudice; indeed, it doesn't apply, because the rule is about using a voluntary dismissal to preclude relitigation of a claim, ...

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