Landlord’s Double-Rent Holdover Claim Barred by Res Judicata – A Deep Cut (IL 2012)

A commercial lease dispute sets the backdrop for an appeals court’s nuanced discussion of statutory holdover damages and when res judicata and claim-splitting defeat a second lawsuit involving similar facts to and subject matter of an earlier case.

For many years, the tenant in Degrazia v. Levato operated “Jimbo’s” – a sports bar set in the shadow of U.S. Cellular Field (nka Guaranteed Rate Field) and perennial favorite watering hole for Chicago White Sox fans.

Lawsuit 1 – the 2006 Eviction Case

In 2006, plaintiff filed an eviction lawsuit when the lease expired and defendants refused to leave.  In addition to possession of the premises, the plaintiffs also sought to recover use and occupancy damages equal to double the monthly rent due under the lease through the eviction date.

The trial court granted plaintiff’s summary judgment motion in the 2006 eviction suit and struck defendant’s affirmative defense that plaintiff went back on an oral promise to renew the lease.  Defendant appealed and the trial court’s eviction order was affirmed.

Lawsuit 2 – the 2007 Damages Case

Plaintiffs filed a second lawsuit in 2007; this time for breach of lease.  In this second action, plaintiffs sought to recover statutory holdover damages under Section 9-202 of the Forcible Entry and Detainer Act (the “FED Act”).  The court granted defendant’s summary judgment motion on the basis that plaintiff’s second lawsuit was barred by res judicata and the policy against claim-splitting.  The plaintiffs appealed.

Rules and Reasoning

For res judicata to foreclose a second lawsuit, three elements must be present:  (1) a final judgment on the merits rendered by a court of competent jurisdiction; (2) an identity of
causes of action; and (3) an identity of the parties or their privies.

Illinois courts also hew to the rule against splitting claims or causes of action. Under the claim-splitting rule, where a cause of action is entire and indivisible, a plaintiff cannot divide it by bringing separate lawsuits.  A plaintiff cannot sue for part of a claim in one action and then sue for the rest of the claim in a second suit.  Like res judicata, the claim-splitting rule aims to foster finality and protect litigants from multiple lawsuits.

The First District held that the trial court’s order in the 2006 lawsuit granting plaintiffs’ motion for summary judgment was a final order only on the issue of possession but not on plaintiff’s attorneys’ fees since the court expressly granted plaintiffs leave to file a fee petition.  And since there was no final order entered on plaintiff’s attorneys’ fees in the 2006 case, plaintiffs could seek the same fees in the 2007 lawsuit.

The Court did, however, affirm summary judgment for the tenants on plaintiffs’ statutory holdover claim.  FED Act Section 9-202 provides that a tenant who willfully holds over after a lease expires is liable for double rent. 735 ILCS 5/9-202.

The Plaintiffs sought the same double rent in both the 2006 (eviction) and 2007 (damages) lawsuit and requested these damages in their summary judgment motion filed in the 2006 case.  The eviction judge in that 2006 case only allowed plaintiffs to recover statutory use and occupancy instead of statutory holdover rent.  The First District held that the use and occupancy order was final.  And since plaintiffs never appealed or challenged the use and occupancy order in the 2006 case, plaintiff’s 2007 Lawsuit was defeated by res judicata.

The Court also rejected plaintiffs’ argument that the forcible court (in the 2006 Lawsuit) was limited to ordering possession and unable to award statutory holdover damages.  It found that FED Act Section 9-106 expressly allows a landlord to join a rent claim and FED Sections 9-201 and 9-202 respectively allow a plaintiff to recover use and occupancy and holdover damages.  As a result, the First District found there was nothing that prevented the 2006 eviction case judge from awarding holdover rent if plaintiffs were able to show that defendants willfully held over after the lease expired.

Afterwords:

There is scant case law on Illinois’ holdover statute.  While an action for possession under the FED Act is, in theory, a limited, summary proceeding directed solely to the question of possession, the FED Act sections that allow a plaintiff to join a rent claim, to recover use and occupancy payments in addition to double holdover rent give shrewd lessee lawyer’s enough of an opening to argue issue or claim preclusion.

This case demonstrates that the best pleadings practice is for the landlord to join its double-rent claims in the eviction case and put the burden on the tenant to argue the holdover damages claim is beyond the scope of a FED action.  Otherwise, there is a real risk that the failure to join a holdover claim in the possession action will prevent holdover damages in a later lawsuit.

No Automatic Finality Where Pleading Never Amended After ‘Without Prejudice’ Dismissal – IL Court

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.

Implication

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.

Commission Payment Terms in Employment Contract Trump Cable Rep’s ‘Procuring Cause’ Claim in Sales Contract Spat – IL Court

I once represented a client who sued his former employer – an energy company – for unpaid commission and bonuses.  Before he hired me, the client filed a pro se administrative claim with the Illinois Department of Labor (DOL) to recover the monies.  The DOL found in my client’s favor but could not decide on a specific dollar amount. Several months later, I sued to recover under the Illinois Wage Payment and Collection Act (Wage Act) and for breach of contract.  In that case, which settled favorably for us, the employer unsuccessfully argued my client’s prior DOL case precluded our civil Wage Act claim.  The trial court rejected this res judicata argument on the basis that the DOL proceeding was not equivalent to a prior adjudication on the merits.

Borum v. Wideopenwest Illinois, LLC, 2015 IL App (1st) 141482-U, a two-year old, unpublished decision, presents a similar fact pattern and considers whether an ex-employee’s earlier administrative claim prevents a later civil lawsuit against the same employer for the same claim.  The case also spotlights the interplay between an employment agreement’s payment terms and the procuring cause doctrine in a sales commissions dispute.

Defendant hired plaintiff to prospect for cable customers.  It agreed to pay plaintiff a commission based on customers he signed up.  The defendant’s standard employment contract documented the plaintiff’s commission payment rights: plaintiff earned his commission once a customer signed a right-of-entry agreement with the cable supplier.

After lodging an unsuccessful DOL, plaintiff sued the cable company in state court to recover unpaid sales commissions. The trial court granted defendant’s motion to dismiss all counts of the plaintiff’s complaint and plaintiff appealed.

Affirming the trial court’s dismissal, the Court first considered whether the plaintiff’s DOL proceeding barred his civil suit under res judicata or collateral estoppel principles.  Section 14 of the Wage Act authorizes an employee to file either a DOL claim or a civil action, but not both, to recover underpayment damages along with 2% per month of the underpaid amount.

The DOL ruled against the plaintiff.  It found the right-of-entry agreements were not consummated until signed by both a customer and the defendant employer.)

The Court found the DOL hearing was too informal and not “judicial” or “adjudicatory” enough to defeat plaintiff’s later civil suit under the res judicata rule.

Res judicata requires a final judgment on the merits by a court of competent jurisdiction.  Collateral estoppel precludes litigation of an issue previously decided in an earlier proceeding.  Res judicata and collateral estoppel can extend to administrative proceedings that are judicial, adjudicatory or quasi-judicial in nature.

So where administrative proceedings involve sworn testimony, are adversarial in nature and include cross-examination of witnesses, they can bar a subsequent civil suit.

Here, since the DOL conducted only an informal hearing with no cross-examination or sworn witnesses, the DOL had no adjudicatory power over the parties and so its finding for defendant had no preclusive effect against the plaintiff’s lawsuit.

The court also rejected plaintiff’s procuring cause argument.  Designed to soften the harsh impact of at-will contracts, the procuring cause doctrine allows a departed salesperson to recover commissions on sales he/she consummated before his/her employment ends even where the money isn’t paid to the employer until after the salesperson departs.  The procuring cause rule is only a gap filler though: it’s a default rule that only applies where a contract is silent on when commissions are paid.

Since plaintiff’s contract with defendant specifically provided plaintiff would be paid commissions earned during (but not after) the period of the employment, the court found this specific enough to vitiate the procuring cause rule.

Lastly, the Court considered whether defendant violated its handbook which stated compensation terms could only be changed on 30 days advance notice.  Plaintiff argued that the defendant made a unilateral change to its compensation policy without giving plaintiff the requisite notice.

The key question for the Court was whether the employee manual was an enforceable contract. For an employee handbook to vest an employee with binding contract rights, (1) the handbook promise must be clear enough that an employee reasonably believes and offer has been made, (2) the handbook offer must be distributed to the employee so that he/she actually receives it or is aware of its contents; the (3) the employee must accept the offer by commencing work after learning of the policy statement.

Since the plaintiff conceded he wasn’t aware of the employee manual until the day he was fired, the court found he couldn’t reasonably show the handbook provided him with enforceable contract rights. (¶¶ 83-85).

Bullet-points:

  • Administrative claims can support a res judicata defense but only where the administrative hearing is adversarial (judicial) in nature; such as where witnesses give sworn testimony that can be tested on cross-examination;
  • The procuring cause rule won’t trump specific contract payment terms;
  • A written employer policy on compensation adjustments isn’t binding against an employer where the aggrieved employee isn’t aware of the policy until on or after he/she’s fired.

 

 

 

 

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