Company’s Fraud Suit Versus Rival’s Ex-CFO Defeated by Prior Arbitration Award: Illinois Res Judicata Basics

The privity element of the res judicata doctrine focuses on whether two parties to two separate lawsuits have legal interests that are so intertwined they should be treated as the same parties.  Privity is usually an easier question than the res judicata’s other well-settled components – whether the two cases stem from the same transaction and whether that first case was resolved via a final judgment on the merits.

In Alaron Trading Co. v. Hehmeyer, 2015 IL App (1st) 133785-U, the First District examines res judicata’s privity element through the lens of a trading firm suing an officer of a rival company for stealing clients and not paying referral fees where that rival previously won an arbitration award against the trading firm for breach of contract.

Facts and Chronology: In 2012, the corporate officer defendant’s former company won a $400,000 arbitration award against the plaintiff trading firm for prematurely terminating a year-long trading contract.  Several months after the arbitration award, the trading firm sued the corporate officer in state court for fraud and tortuous interference. The trial court granted defendant’s Section 2-619 motion, premised on res judicata.

Held: Affirmed.


A motion under Code Section 2-619(a)(4) is the proper section to bring a res judicata motion;

– Res judicata requires an “identity of cause of action” between two separate legal proceedings (here, an arbitration case followed by a later court case);

– Res judicata can bar a defendant in one case from filing claims in a second case where the second case claims are based on the same facts as the plaintiff’s first case allegations.

– Separate claims are considered the same for res judicata purposes where they arise from a single group of operative facts, even though the causes of action are titled differently;

– Res judicata not only bars claims that were brought in an earlier case/arbitration, but also claims that could have been brought;

– Res judicata also requires “privity” between parties to two separate proceedings.  Privity applies where two parties are different in name but whose legal interests are substantially aligned such that an adjudication of one party’s rights in an earlier case will bind the second party in the second case;

– Quintessential privity relationships include members of partnerships and corporation and their officers, directors and shareholders;

(¶¶46-49, 56).

Here, all res judicata grounds were present.  The defendant in the state court case was the ex-CEO of the prior arbitration plaintiff.  In addition, the state court plaintiff (the trading firm and arbitration defendant) filed a voluminous counterclaim in the arbitration that was based primarily on the (state court) defendant’s conduct and that stemmed from the same underlying facts as the state court complaint.

Given his former CEO status, the defendant’s interests neatly aligned with those of his former employer – the arbitration plaintiff.  And since the court found that the state court plaintiff could have filed counterclaims against the defendant CEO in the earlier arbitration, res judicata applied and defeated plaintiff’s current court action.


The lesson of this case is to file all possible claims against all possible parties that stem from the same underlying facts.  This is especially urgent where it looks like there is a possibility of multiple proceedings: that is, where successive lawsuits (or arbitrations) could be filed.  Otherwise, by holding back on claims in a prior case, a litigant could be foreclosed from filing claims in a second suit.

Judicial Notice, Screenshot Evidence and On-line “Browsewrap” Contractual Arbitration Clauses – A Case Note

Judicial notice serves the salutary purpose of saving litigation time and expense.  It applies in situations where one party wants to establish a fact that’s not subject to reasonable dispute (e.g. Sacramento is the capital of California, for instance).  Judicial notice’s effect is that the party doesn’t have to endure the time and expense of calling a witness to testify or to marshal cumbersome documents to prove the generally known fact.

The rule is codified at Federal Rule of Evidence (and Illinois Rule of Evidence) 201.  Van Tassell v. United Marketing Group, LLC, 795 F.Supp.2d 770 (N.D.Ill. 2011) is a fairly recent case application of judicial notice in the context of a class action consumer fraud action versus various on-line vendors for unapproved credit card charges.

In addition to its clear judicial notice illustration, the case also has value for its discussion of the key factors governing on-line contracts that contain hard-to-find alternative dispute provisions.

Here’s some key judicial notice points, gleaned from the case (and others like it):

Under FRE 201, a court may take judicial notice of an adjudicative fact that is not subject to reasonable dispute;

– An adjudicative fact is one that applies specifically to the parties in a specific case (as opposed to “legislative facts” which involve more general facts that could apply across the board to any situation);

– A fact is not subject to reasonable dispute where (1) it is generally known within the territorial jurisdiction of the trial court; or (2) is capable of accurate and ready determination by resort to sources whose accuracy can’t reasonably be questioned.

One of the on-line vendor defendants moved to dismiss the complaint and attached screenshots of on-line enrollment forms, which contained pro-merchant disclaimer language.  The defendant asked the court to take judicial notice of the enrollment pages since they were printed off the Internet.

But the court refused to take judicial notice of the Web pages.  In their response to the motion, the plaintiffs filed affidavits stating they never viewed the enrollment pages.  They (the plaintiffs) also didn’t refer to the enrollment pages in their Complaint.  As a result, the Web enrollment pages weren’t properly before the court on a motion to dismiss since on a Rule 12(b)(6) motion, a court typically only considers the face of a complaint and any documents “central” to a complaint.

Next, the court addressed whether the various on-line contract’s arbitration provisions were enforceable against the consumer plaintiffs on an on-line merchant defendant’s motion to compel arbitration.

Cyberspace contracts don’t change the elemental rules of contract formation: a contract requires a meeting of the minds and a manifestation of mutual assent.  Two common Internet contracts are clickwrap agreements and browsewrap agreements.  In the former, the webpage user must take affirmative steps to accept on-line contract terms; usually by clicking “accept” or checking an “I agree” box.  With a browsewrap contract, though, no action needs to be taken to “accept” the on-line vendor’s contract terms.  Using the site equates to accepting the terms.

The contract here involved a browsewrap contract and so was subjected to closer court scrutiny.  Since the arbitration provision was couched in the site’s “Conditions of Use” section which could only be accessed via a multi-step process, the court found the provision wasn’t prominent enough to be enforced.  As a result, the court denied the merchant’s motion to compel arbitration.  (pp. 779-780, 789-791).


1/ The case provides an interesting applications of judicial notice to computerized context.  While this court didn’t take judicial notice, I’ve found it to be an economical time-saving device as it eliminates the need to go through the cumbersome exercise of gathering evidence on issues for which there’s really no room for debate;

2/ Arbitration provisions buried in a maze of fine print or that can only be located through a tedious, multi-step process won’t be enforced;

3/ Browsewrap contracts that result in a user’s passive acceptance of contract terms are more stringently construed by a court than is a clickwrap contract.

Contractual Arbitration Clauses and Unconscionability – IL 4th Dist. Case Note

Courts generally favor contractual arbitration clauses. The reason is that they (in theory at least) save litigants’ time and money and also reduce court congestion.

Arbitration provisions appear in varied business settings ranging from franchise agreements and personal services contracts to employment agreements and most everything in between.

Willis v. Captain D’s , 2015 IL App (5th) 140234-U examines an arbitration clause in the employment contract context and whether the clause is expansive enough to cover an employee’s sexual harassment claim involving a co-worker.

There, a plaintiff grocery store cashier signed an employment contract that contained broad arbitration language.  Claiming her co-employee sexually harassed her and the defendant did nothing to stop it, the plaintiff filed multiple state court tort claims without first demanding arbitration. The trial court denied the employer defendant’s motion to compel arbitration finding the plaintiff’s assault and battery claims did not arise out of her employment and were beyond the scope of arbitration.  Defendant appealed.

Held: Reversed

In finding that plaintiff’s claims fell within scope of the arbitration clause, the court announced the key rules that govern arbitrability:

Under the Illinois Uniform Arbitration Act, 710 ILCS 5/1 et seq., parties are bound to arbitrate the issues they agreed to arbitrate;

– A court (not an arbitrator) decides whether a particular dispute is subject to arbitration;

– The two main arbitrability issues are (1) whether the parties are bound by a given arbitration agreement, and (2) whether an arbitration provision applies to a particular type of controversy;

– Where two parties mutually agree to arbitrate, there is sufficient consideration to bind each side to the arbitration provision;

– Inclusion of the phrase “arising out of” or “related to” in connection with an arbitration agreement denotes broad application of the arbitration agreement;

– An arbitration clause will be deemed procedurally unconscionable where it’s difficult to find, read or understand and where a party didn’t have reasonable opportunity to appreciate the clause;

Substantive unconscionability will negate an arbitration agreement where it’s terms are blatantly skewed in one side’s favor to the exclusion of the weaker contracting party or where arbitrating would impose substantial costs on a party;

– Continued employment after notice of an arbitration agreement is sufficient consideration to enforce the agreement.

(¶¶ 12-32)

Validating the arbitration clause, the court held that it was supported by consideration. It found the employer’s promise to employ the plaintiff and to keep employing her in exchange for plaintiff signing the employment contract was sufficient to bind the plaintiff to the arbitration agreement.

The court also rejected the plaintiff’s unconscionability arguments. On the procedural unconscionability front, the court found that the plaintiff had two separate occasions to review and accept the arbitration agreement (plaintiff was previously hired a few years ago by the same defendant) and the arbitration language conspicuously appeared in all-caps. It wasn’t buried in a maze of fine print.

Substantively, the court found that the plaintiff failed to support her claim that submitting to arbitration was cost-prohibitive – especially since the court filing fee exceeds the contractual arbitration fee.

The court also found that the arbitration agreement encompassed the plaintiff’s claims. While her assault and battery claims were against an individual employee, her remaining claims against the corporate defendant sounded in negligent hiring, retention and supervision. In light of the arbitration clause’s sweeping language, these claims clearly fell within the reach of the arbitration clause.


– The court (not an arbitrator) determines whether a dispute is subject to arbitration;

– A promise of employment conditioned on employee signing arbitration agreement will likely meet requirements of a valid contract;

– Broad arbitration language that contains “arising out of” and “related to” phrasing will constitute strong support for a broad application of an arbitration clause.