Tag: civil procedure

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.

Defendant Doesn’t Abandon Counterclaim By Failing to Replead It In Response to Amended Complaint – Ohio Fed. Court

I recently faced this procedural quandary: Plaintiff (that’s us) filed a complaint.  Defendant responded by filing an answer and counterclaim.  After receiving court leave, and before responding to the counterclaim, we amended the complaint.  Defendant answered the amended complaint and filed affirmative defenses but did not replead its counterclaim.

Defendant later threatened to default us if we didn’t answer its prior counterclaim.  I argued that the earlier counterclaim was extinguished by the amended complaint since the defendant didn’t file a counterclaim to it.  The defendant thought otherwise.  Ultimately, to avoid spending time and money on a collateral issue, I answered the counterclaim – even though I don’t think I had to.

My research revealed a definite split of authority on the issue.  Some courts hold that an amended pleading supersedes not only the original complaint (that’s obvious) but also an earlier counterclaim to the superseded complaint.  Others take the opposite tack and find that a counterclaim is separate from the answer and that even where a complaint is withdrawn and amended, the prior counterclaim still remains and must be answered.

Mathews v. Ohio Public Employees Retirement System, 2014 WL 4748472 reflects a court weighing the facts of a given case in deciding whether a defendant must replead its counterclaim or can stand on the one it previously filed.

The plaintiffs sued alleging their disability retirement benefits were wrongly denied.  The pension fund defendant filed an answer and counterclaim to recover overpaid benefits. The plaintiff later filed an Amended Complaint to which the defendant answered but did not re-assert a counterclaim.  Plaintiff moved for judgment on the pleadings based on the absence of a counterclaim with defendant’s answer to the amended pleading.  The defendant then moved for leave to file a counterclaim to the Amended Complaint.  Plaintiff opposed the motion.

Siding with the defendant, the Ohio Federal court looked to the interplay between Federal Rules 13 and 15 and noted that “courts are divided” on whether a party must replead a counterclaim in response to an amended complaint.

Federal Rule 13 requires a pleading to state compulsory counterclaims and allows it to allege permissive counterclaims.

Federal Rule 15(a)(3) provides that, “[u]nless the court orders otherwise, any required response to an amended pleading must be made within the time remaining to respond to the original pleading or within 14 days after service of the amended pleading, whichever is later.”

Some courts interpret this to mean that a defendant must replead a counterclaim in response to an amended complaint or it abandons or waives the right to pursue the counterclaim* while others do not require a defendant to replead a counterclaim with its response to an amended complaint.**

Still, a third line of cases decides the question on a case-by-case basis: it considers whether plaintiff received notice of the counterclaim, whether the defendant pursued the counterclaim and whether plaintiff will suffer unfair prejudice if the prior counterclaim proceeds.

The Court ultimately followed the latter case authorities; it weighed the equities to decide whether the defendant abandoned its counterclaim.  In allowing the defendant to file a counterclaim to the plaintiff’s Amended Complaint, the Court noted that Plaintiff had been on notice for several months that defendant intended to pursue its counterclaim and even replied to the counterclaim.

The Court also cited Plaintiff’s failure to establish prejudice if the Defendant was allowed to file a counterclaim. The Court rejected plaintiff’s judicial economy argument by noting that discovery was already closed when plaintiff moved for judgment on the pleadings and the proposed amended answer and counterclaim injected no new facts to the previously filed counterclaim.

Afterwords: When a complaint is amended it is treated as abandoned.  However, if a defendant filed a counterclaim along with its answer to the abandoned complaint, there is case authority (not just in Ohio but in other states, too) for the proposition that the counterclaim is not extinguished and the plaintiff still must answer it.

Mathews and cases like it demonstrate that the safe procedural play is for a defendant to replead its counterclaim with its answer to an amended pleading.  Otherwise, the defendant may have to defend against a claim that it waived its counterclaim by not refiling it in response to the amended pleading.

 

 

* Gen. Mills, Inc. v. Kraft Foods Global, Inc., 487 F.3d 1368, 1376–77 (Fed.Cir.2007); Bremer Bank, Nat’l Ass’n, 2009 U.S. Dist. LEXIS 21055, at *40–41, 2009 WL 702009   Nat’l Mut. Cas. Ins. Co. v. Snider, 996 F.Supp.2d 1173, 1180 n. 8 (M.D.Ala.2014)

** Performance Sales & Mktg. LLC v. Lowe’s Cos., No. 5:07–cv–00140, 2013 U.S. Dist. LEXIS 117835, at *9 n. 2, 2013 WL 4494687 (W.D.N.C. Aug. 20, 2013); Ground Zero Museum Workshop v. Wilson, 813 F.Supp.2d 678, 705–06 (D.Md. Aug.24, 2011)

*** Davis v. Beard, 2014 U.S. Dist. LEXIS 30461, at *12–13, 2014 WL 916947 (E.D.Mo. Mar. 10, 2014) Hitachi Med. Sys. Am., Inc. v. Horizon Med. Grp., 2008 WL 5723531 (N.D.Ohio 2008) ; AVKO Educ. Research Found. v. Morrow, 2013 U.S. Dist. LEXIS 49463, at *30, 2013 WL 1395824 (E.D.Mich. Apr. 5, 2013); Cairo Marine Serv. v. Homeland Ins. Co., No. 4:09CV1492, 2010 U.S. Dist. LEXIS 117365, at *3–4, 2010 WL 4614693 (E.D.Mo. Nov. 4, 2010)

 

“I Just Work Here”: Service on Corporate “Employee” Not The Same As Service On Corporate “Agent” – IL Court

Route 31, LLC, v. Collision Centers of America, 2015 IL App (2d) 150344-U examines the law and facts that determine whether service of process on a corporation complies with Illinois law.

The plaintiff served its lawsuit on the defendant’s office manager and eventually won a default judgment.  About nine months later, the corporation moved to quash service and vacate the default judgment on the basis that service was defective.  The trial court denied the motion and the defendant appealed.

The corporate defendant argued that the court had no personal jurisdiction over it since the plaintiff improperly served the lawsuit. A judgment entered without personal jurisdiction can be challenged at any time.

  • Personal jurisdiction may be established either by service of process in accordance with statutory requirements or by a party’s voluntary submission to the court’s jurisdiction.
  • Strict compliance with the statutes governing the service of process is required before a court will acquire personal jurisdiction over the person served.
  • Where service of process is not obtained in accordance with the requirements of the statute authorizing service of process, it is invalid, no personal jurisdiction is acquired, and any default judgment rendered against a defendant is void.
  • Section 2–204 of the Code provides that a private corporation may be served by leaving a copy of the process with its registered agent or any officer or “agent” of the corporation found anywhere in the state or in any other manner permitted by law. 735 ILCS 5/2–204 (West 2012).
  • Substitute service of a corporation may be made by serving the Secretary of State. 805 ILCS 5/5.25(b)
  • A sheriff’s return of service is prima facie evidence of service, which can be set aside only by clear and satisfactory evidence.
  • However, when a corporation is sued, the sheriff’s return as to the fact of agency is not conclusive. Id.

(¶¶ 13-14)

Employee vs. Agent: “What’s the Difference?”

Employee status and agency are often used interchangeably in common parlance but the terms differ in the service of process context.  An employee is not always an “agent.”   Illinois cases have invalidated service of process on corporations where a plaintiff, in different cases, served a cashier and receptionist with process and neither understood what it was.

But at least one court (Megan v. L.B. Foster Co., 1 Ill.App.3d 1036, 1038 (1971), did find that “service upon an intelligent clerk of a company who acts as a receptionist and who understood the purport of the service of summons” was sufficient service on a corporate employee.

In Collision Centers, the plaintiff and defendant submitted warring affidavits.  The plaintiff’s process server testified that the summons recipient held herself out as the “office manager,” and acknowledged that she was authorized to accept service.  The office manager’s affidavit said just the opposite: she claimed to have no corporate responsibilities or authority to receive legal papers for her employer.

The court noted that under the process server’s affidavit, the office manager was akin to an agent – an “intelligent” company representative who appreciates the importance of the served summons.

Yet the defendant’s office manager swore she was only a garden-variety “employee” who lacked any corporate authority to accept service and lacked a basic understanding of the papers’ meaning.  In fact, the office manager stated in the affidavit that she was badgered into accepting the papers by the plaintiff’s process server.

The widely divergent affidavit testimony meant the court could only decide the service issue after an evidentiary hearing with live testimony.  Since plaintiff has the burden of proving proper corporate service and never requested an evidentiary hearing in the trial court, the trial court erred in denying defendant’s petition to quash service without first conducting a hearing.  As a result, the judgment against the corporation was reversed.

Afterwords:

This case highlights the importance of a civil suit plaintiff’s vigilance when serving a corporation.  If service on a registered agent of a corporation (something that is typically public record via a Secretary of State website) isn’t possible, the plaintiff should take pains to serve an officer of the corporation or at least a knowledgeable agent.  Unfortunately, in Illinois at least, this isn’t always possible on the first try since service must usually go through the County Sheriff in the first instance.