Tag: same cause

Italian Lawsuit Filed Against Auto Repair Giant Dooms Later Illinois Lawsuit Under ‘Same Parties/Same Cause’ Rule

Where two lawsuits are pending simultaneously and involve the same parties and issues, the later filed case is generally subject to dismissal.  Illinois Code Section 2-619(a)(3) allows for dismissal where “there is another action pending between the same parties for the same cause.”

Midas Intern. Corp. v. Mesa, S.p.A., 2013 IL App (1st) 122048, while dated, gives a useful summary of the same-cause dismissal guideposts in the context of an international franchise dispute.

Midas, the well-known car repair company entered into a written contract with Mesa, an Italian car repairer, to license Midas’s business “System” and related trademarks.  In exchange for licensing Midas’s business model and marks, Mesa paid a multi-million dollar license fee and made monthly royalty payments.  The contract had a mandatory arbitration clause and a separate license agreement incorporated into it that fixed Milan, Italy or Chicago, Illinois as the venues for license agreement litigation.

Mesa sued Midas in an Italian court claiming Midas violated the license agreement by not making capital investments in some of Mesa’s projects.  A month or so later, Midas sued Mesa in Illinois state court for breach of contract and a declaratory judgment that Midas was in compliance with the license agreement and was owed royalties.  The trial court dismissed Midas’ suit based on the pending Italian lawsuit filed by Mesa.  Midas appealed.

Held: Affirmed.

Reasons:

The case turned on whether Mesa’s lawsuit stemmed from the same cause as Midas’s Illinois action.  Dismissal of an action under Code Section 2-619(a)(3) is a “procedural tool designed to avoid duplicative litigation.”  Under this section, actions involve the same cause when the relief sought in two cases rest on substantially the same set of facts.  The test is whether the two actions stem from the same underlying transaction or occurrence; not whether the pled causes of action or legal theories in the two cases are the same or different.

Two cases don’t have to be identical for Section 2-619(a)(3) to apply.  All that’s required is the cases feature a “substantial similarity of issues.”  (¶ 13)

If the same cause and same party requirements are met, the Court can still refuse dismissal if the prejudice to the party whose case is dismissed outweighs the policy against duplicative litigation.  In assessing prejudice caused by dismissal, the court considers issues of comity, prevention of multiplicity of lawsuits, vexation, harassment, likelihood of obtaining complete relief in the foreign forum, and the res judicata effect of a foreign judgment in the local forum (here, Illinois).

Courts also look to which case was filed first; although order of case filing isn’t by itself a dispositive factor.

Rejecting Midas’ argument that the Italian lawsuit was separated in time and topics from the Illinois lawsuit, the Court noted that Mesa’s lawsuit objective was to preemptively defend against Midas’s royalty claims.  Midas Illinois lawsuit, filed only weeks after Mesa’s action, sought damages under a breach of contract theory – that Mesa breached the license agreement by not paying royalties.

Since the outcome in the Mesa (Italian) case will determine the Midas (Illinois) case, the Court found the Illinois case was barred because Mesa’s action involved the same parties and same cause: both cases originated from the same license agreement.

The Court also found that Midas wouldn’t be prejudiced due to the dismissal of the Illinois action. Midas has the resources to file a counterclaim in the Italy case and the license agreement provides that either Milan or Chicago are possible lawsuit venues.  Since Illinois and Italy each had similar interests in and a connection to the dispute (the royalty payments were sent from Italy and received in Illinois), the trial court had discretion to dismiss Midas’ Illinois lawsuit. (¶ 25).

Afterwords:

1/ This case lays out the different factors a court considers when determining whether to dismiss an action under the same cause/same parties Code section;

2/ The timing of the filing of two lawsuits along with each forum’s connection to the dispute are key factors considered by the court when deciding whether avoiding redundancy in litigation trumps a party’s right to have its case heard on the merits.

Fraud Suit Dismissed Where Prior Corporate Dissolution Claim Pending Between Parties – IL Court

Illinois courts aim to foster efficiency and finality in litigation. One way they accomplish this is by protecting people from repetitive lawsuits and requiring plaintiffs to bring all their claims in a single case.  Consolidation of claims is encouraged while piecemeal “claim splitting” is discouraged.

Code Section 2-619(a)(3) is a statutory attempt to streamline litigation. This section that allows for dismissal of a case where there is another action pending between the same parties for the same cause.

Schact v. Lome, 2016 IL App(1st) 141931 provides a recent case illustration of this section in the context of an aborted medical partnership.

The defendant originally filed suit in 2010 against two of his former medical partners to void their attempt to dissolve a medical corporation operated by them. The parties litigated that case for over three years before the plaintiffs (who were the defendants in the 2010 case) filed suit in 2013 for fraud.

The 2013 fraud action alleged the defendant fraudulently induced the plaintiffs to agree to a distribution of the medical corporation’s assets knowing that he (defendant) was going to challenge the corporate dissolution.

According to the plaintiffs, the defendant received almost $50,000 in cash on top of some corporate equipment based on his promise to end the 2010 litigation. Plaintiffs claimed the defendant hoodwinked them into agreeing to the money and property disbursements based on the defendant’s assurance he would dismiss the prior lawsuit.

The trial court dismissed the fraud action based on the same parties, same cause rule.  Affirming dismissal, the appeals court provided content to the “same cause” element of a Section 2-619 motion to dismiss.

  • Illinois Code Section 2-619(a)(3) is a procedural device aimed at avoiding duplicative litigation. It applies where there is a pending case involving the same parties for the same cause.
  • Lawsuits present the same cause when the relief sought is “based on substantially the same set of facts”;
  • The salient inquiry is whether both cases arise from the same transaction or occurrence, not whether the two lawsuits have identical causes of action or legal theories;
  • If the relief requested in each lawsuit relies on substantially the same facts, the “same cause” is met and can present grounds for dismissal.

(¶¶ 35-36)

In finding the same cause test met, the Court noted the 2010 dissolution action and the 2013 fraud suit were “inextricably intertwined.” Both cases involved a challenge to the plaintiffs’ earlier attempted breakup of the medical corporation.  Both cases also centered on the defendant’s conduct in agreeing to a distribution of the corporate assets while at the same time contesting those distributions.  Another commonality between the two suits was the damages claimed by the plaintiffs in the fraud action equaled the defense costs they incurred in the 2010 dissolution action. (¶ 37).

Since both lawsuits involved the same underlying facts, had similar issues and were based on the same conduct by the parties, the 2013 fraud action was properly dismissed since the 2010 dissolution action was still pending when the fraud case was filed.

Take-aways:

Once again, considerations of judicial economy win out over opposing claims that two lawsuits are different enough to proceed on separate tracks.

Schact gives a broad reading to a somewhat nebulous basis for dismissal.  The case stresses that the legal theories advanced in two lawsuits don’t have to be identical to trigger the same cause element of Section 2-619.

Schact’s lesson is clear: Where two lawsuits between the same parties share common issues and stem from substantially similar facts, a defendant will have a strong argument that the later-filed case should be dismissed under the same cause Code section.

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.

Rules/Reasons:

– 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.

Afterwords:

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.