No Claim-Splitting or Res Judicata Issue Where Bank Refiles Breach of Note Claim After Prior DWP – From the Illinois Archives

BankFinancial, FSB v. Tandon, 2013 IL App (1st) 113152 serves as fairly recent reminder of the possible pitfalls that await a plaintiff who chooses to voluntarily dismiss or non-suit certain complaint counts when other counts of the complaint are involuntarily dismissed – such as by a motion to dismiss filed by a defendant.

The strategic reasons for taking a voluntary dismissal are several.  A non-suit can be a time-buying device when you get to trial and you realize you need more time to secure witnesses and strengthen your case.  Having some chronological breathing room to further develop your case can pay psychological and financial dividends for both client and lawyer.  But as BankFinancial amply illustrates, the right to voluntarily dismiss a claim and later refile it has limits.

In this breach of contract and mortgage foreclosure case, Plaintiff filed a three-count complaint for mortgage foreclosure, breach of contract (the promissory note) and breach of guaranty in 2003.

In 2006, Plaintiff voluntarily dismissed the foreclosure count and in 2008 the remaining claims were dismissed for want of prosecution (“DWP”).  A few month later, in January 2009, the plaintiff filed a new lawsuit, repleading its breach of note and breach of guaranty claims.

The trial court dismissed the 2009 case based on res judicata and plaintiff appealed.

Held: reversed.

Q: Why?

A: Res judicata’s central purpose is to preclude parties from contesting matters they had a full and fair opportunity to litigate.  To further this purpose, a final judgment on the merits is required to trigger res judicata’s application.  A “final judgment” is one that terminates the litigation between the parties on the merits.

A voluntary dismissal of a case or a DWP is, by definition, NOT a final judgment since when a case is DWPd, the court doesn’t reach the merits of a case. 

After a DWP, Code Section 13-217 allows party one year to refile an action within one year and the DWP order doesn’t become final until the one year refilling period expires. (¶¶ 29-30).

Illinois also disallows the related doctrine of claim splitting. Claim splitting applies where a plaintiff tries to refile a claim that he previously voluntarily dismissed in an earlier proceeding AFTER another count of the complaint in that prior action was involuntarily dismissed.

So, if in Case No. 1, a plaintiff’s negligence claim is (involuntarily) dismissed on a defendant’s motion and then plaintiff voluntarily non-suits his remaining breach of contract claim, the plaintiff cannot later file the breach of contract claim in a new action.  This will be deemed impermissible claim splitting because it subverts the law’s desire for finality and efficiency.

Applying these rules, the court held that the plaintiff could properly refile its breach of note and guaranty claims. The voluntary dismissal of the foreclosure count wasn’t a final judgment nor was the DWP of the note and guaranty counts.  The DWP order didn’t become final until a year elapsed from the DWP order date.  Since the plaintiff refiled its note and guaranty counts within a year of the DWP, the refiled action was timely.  As a result, the plaintiff’s refiled suit wasn’t barred by res judicata or the claim splitting rule.

Afterwords:

This case crystallizes the proposition that if a plaintiff non-suits a complaint count or gets a claim(s) DWPd, he can refile the dismissed claims within one year and avoid any dismissal motion based on res judicata.

If a plaintiff non-suits one claim after a different complaint claim is involuntarily dismissed, he will likely be barred from refilling the non-suited claim in a second action under res judicata and claim-splitting rules.  In such a setting, the plaintiff should either litigate the remaining count(s) (the count(s) that isn’t (aren’t) dismissed) to judgment or ask the court for a finding that he can immediately appeal the order dismissing the involuntarily dismissed claim.

Other References:

Hudson v. City of Chicago, 228 Ill.2d 462 (2008)

Rein v. Noyes & Co., 172 Ill.2d 325 (1996)

 

Exclusivity Provision in Lease Permits Landlord to Rent to ‘McD’s’ In NJ Shopping Mall (Much to ‘Sbux’s’ Chagrin)

Exclusivity provisions are staples of some commercial leases, particularly in the shopping mall setting.

The purpose of these so-called “exclusives” is to protect a tenant from a competing business renting in the same shopping center and potentially undercutting the tenant’s pricing. The larger the tenant (think “anchor” tenant) in terms of resources, the more leverage it has in insisting on an exclusivity term.

Delco, LLC v. Starbucks (see https://casetext.com/case/delco-llc-v-starbucks-corp) pits a New Jersey commercial landlord suing the coffee giant for a court declaration that the landlord’s renting to McDonald’s in the same shopping center did not violate an exclusive in Starbucks’ lease that prohibited plaintiff from leasing space to any tenant (other than Starbucks) who would sell “coffee, espresso and tea drinks.”  The one qualification to the exclusive was that the landlord could rent to “any tenant [who occupies] twenty thousand contiguous square feet or more…and operating under a single trade name.”

The appeals court affirmed the trial court’s finding that the landlord could lease 40,000 square feet to McDonald’s (which sells coffee) without violating the Starbucks lease exclusive.

Applying the plain language of the exclusivity term under basic New Jersey contract interpretation rules, the court found that McDonald’s easily qualified as a tenant who is “operating under a single trade name.”  And since the McDonald’s lease encompassed over 20,000 square feet, the McDonald’s lease qualified for the exclusivity exception.

Afterwords:

It’s not clear from the short opinion why Starbucks put up such a fight on what seems like an obvious exception to the exclusivity term. So vigorous were Starbucks litigation efforts here, that the plaintiff was awarded over $113K in lawyer fees litigating whether the McDonald’s lease ran afoul of the exclusive term in the Starbucks’ lease.

The appeals court reversed the fee award though since the trial judge didn’t delineate its specific findings that support its fee award. The case will now go back to the NJ trial court for further litigation of the plaintiff-landlord’s attorneys’ fees.

Process Server’s Return of Service Qualifies As Public Records and ‘Regularly Conducted Business Activity’ Hearsay Exceptions – Florida Appeals Court

My experience with the hearsay evidence rules usually involves trying to get a business record like an invoice or spreadsheet into evidence at trial or on summary judgment.  The business records hearsay exception is found at Illinois Evidence Rule 803(6) and mirrors the Federal counterpart.  “Exception” in the context of hearsay evidence means a document is hearsay (an out-of-court statement used to prove the truth of the matter asserted) and would normally be excluded but still gets in evidence because the document (or other piece of evidence) has an element of reliability that satisfies the court that the document is what it appears to be.

Occasionally though, I’ve found that a working knowledge of some of the more obscure (to me at least) hearsay exceptions can in some cases lead to a victory or at least resurrect a rapidly flagging case.

Davidian v. JP Morgan Chase Bank, NA, 2015 WL 5827124 (Fla. 4th DCA 2015) (http://www.4dca.org/opinions/Oct.%202015/10-7-15/4D14-2431.op.pdf) a recent Florida appeals court decision, examines some hearsay exceptions as they apply to a process server’s sworn return of service and the persons served are challenging service.

Chase Bank filed a foreclosure suit against defendants/appellants (a husband and wife) and filed returns of service signed by Chase’s process server who certified that he served both appellants at the same time on the same date. The appellants moved to quash service of process on the grounds they were never served. The trial court denied the motion leading to this appeal.

The appeals court affirmed.  It held the appellants failed to show by clear and convincing proof that the returns of service were deficient.

In Florida, the burden of proving proper service of process is on the suing party and the return of service is evidence of whether service was validly made.  A return of service is presumed to be valid and the party contesting service must overcome the presumption by clear and convincing evidence.  A return of service is technically hearsay since it’s an out-of-court statement used to show its truth – that service of summons was in fact made on a party.

Two hearsay rule exceptions recognized not only by Florida courts but various state and Federal courts include the public records and the “regularly conducted business activity” exceptions.  Fla. Stat. s. 90.801, 803(6), (8).

Here, the court found the service return admissible under both exceptions.  The return was a public record – presumably because it was filed as part of the case record.  The return also qualified as evidence of regularly conducted business activity since the process server stated in his affidavit that was his regular practice to prepare such an affidavit detailing the date, time and manner of service.

The appeals court also rejected appellants’ argument that the service returns were defeated by their counter-affidavits in which they denied receiving the summons and complaint.  When faced with a service return and a defendant claiming he/she wasn’t served, the court makes a credibility determination after an evidentiary hearing.   Factual determinations are typically not disturbed on appeal.  The court found that the trial court was in a better position to judge the credibility of the witnesses and upheld the motion to quash’s denial.

Take-aways:

This case presents application of hearsay exceptions in an unorthodox factual setting.  The court expanded the scope of the public records and regularly-conducted-business-activity exceptions to encompass a process server’s return of service.  This case and others  like it validate process servers’ sworn returns and make it easier for plaintiffs to clear service of process hurdles where a defendant claims to have never been served.