Richter v. Prairie Farms Dairy, Inc.’s, (2016 IL 119518) essential holding is that a prior dismissal without prejudice doesn’t convert to a final order for res judicata or appeal purposes where a plaintiff fails to amend the dismissed pleading within the time deadline set by the court and the movant defendant doesn’t seek a dismissal with prejudice.
Claiming their membership in an agriculture cooperative was unfairly terminated, the Richter plaintiffs sued the defendant co-op for statutory shareholder remedies under the Illinois Business Corporation Act, 805 ILCS 5/12.56 (BCA), and common law fraud. Plaintiffs’ key theory was that defendant prematurely and pretextually terminated a milk marketing agreement by invoking an obscure bylaws provision in the agreement.
The trial court dismissed plaintiffs’ fraud claims without prejudice and gave them 30 days to amend their complaint – a deadline ultimately increased to 120 days. Plaintiffs never amended their fraud claims though, instead choosing to pursue the BCA claim. After nearly five years of litigation, the plaintiff sought the voluntary dismissal of the BCA claim and later refiled another action within the one-year window allowed by 735 ILCS 5/2-1009.
The trial court granted the defendant’s 2-619 motion to dismiss the refiled suit under res judicata principles. It found the plaintiffs’ failure to amend the fraud claims “finalized” the prior dismissal without prejudice order and barred plaintiffs’ refiled suit. The Fourth District reversed. It held the trial court’s dismissal without prejudice was not final on its face and could never support a res judicata finding. Defendant appealed to the Illinois Supreme Court.
Affirming the appeals court, the Supreme Court dove deep into the earmarks of a final judgment for appeal and res judicata purposes and examined when an involuntary dismissal precludes the later refiling of a lawsuit.
Res judicata requires a final judgment on the merits for the doctrine to preclude a second lawsuit between two parties for the same cause of action. The doctrine bars not only what was actually decided in a prior action, but also matters that could have been litigated and decided in that action.
A “final” judgment or order denotes one that terminates the litigation and absolutely fixes the parties’ rights so that all that’s left is enforcing the judgment. (⁋24)
Illinois Supreme Court Rule 273 provides that an involuntary dismissal – other than one for lack of jurisdiction, improper venue, or failure to join an indispensable party – is considered an adjudication on the merits.
A dismissal “without prejudice” signals there was no final decision on the merits. A dismissal that grants a plaintiff leave to amend its pleading is not final because the dismissal does not terminate the litigation. (⁋25). In such a case, a plaintiff is not barred from refiling an action. s
The Illinois Supreme Court declined the defendant’s invitation to create an “automatic final judgment ” rule when a plaintiff fails to amend within court-imposed time limits. Instead, the Court placed the onus on the litigants to convert a non-final dismissal order into a final one by seeking a dismissal with prejudice once the time for amendments has lapsed. And since the defendant had the burden of showing that res judicata applied and failed to obtain a definite with prejudice dismissal of plaintiff’s claims, the plaintiff was not prevented from refiling their lawsuit.
But What About Rein and Hudson?
Rein v. David A. Noyes & Co., 172 Ill.2d 325, 334–35 (1996) and Hudson v. City of Chicago, 228 Ill.2d 462, 467 (2008) are oft-cited case law poster children for the perils of refiling previously (voluntarily) dismissed claims when other claims in the same suit were involuntarily dismissed. In such a case, a plaintiff’s refiled action can be barred by res judicata since the voluntarily dismissed claims could have been litigated in the earlier suit. But here, unlike in Rein and Hudson, no part of plaintiff’s suit was dismissed with prejudice. And since a nonfinal order can never bar a subsequent action, res judicata didn’t apply.
When faced with a dismissal without prejudice, a plaintiff should quickly seek leave to amend or seek a dismissal with prejudice to start the notice of appeal clock. For its part, a defendant should seek with- prejudice dismissal language where a plaintiff fails to amend within time limits allowed by the court. Doing so will put the defendant in a good position to file a dismissal motion predicated on res judicata or claim-splitting if the plaintiff later refiles against the same defendant.