Gilldorn Sav. Ass'n v. Commerce Sav. Ass'n

• Decision Date: 15 January 1987
• Docket Number: No. 85-3169,85-3169
• Citation: 804 F.2d 390
• Parties: GILLDORN SAVINGS ASSOCIATION, Gilldorn Corporation, and Gilldorn Mortgage Midwest Corporation, Plaintiffs-Appellees, v. COMMERCE SAVINGS ASSOCIATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 390

804 F.2d 390

6 Fed.R.Serv.3d 445

GILLDORN SAVINGS ASSOCIATION, Gilldorn Corporation, and Gilldorn Mortgage Midwest Corporation, Plaintiffs-Appellees, v. COMMERCE SAVINGS ASSOCIATION, Defendant-Appellant.

No. 85-3169.

United States Court of Appeals Seventh Circuit.

Argued April 4, 1986.

Decided Oct. 24, 1986.

As Amended on Denial of Rehearing Jan. 15, 1987.

Jeffrey Lennard, Sonnenschein, Carlin, Nath & Rosenthal, Chicago, Ill., for defendant-appellant.

Stephen E. Smith, Siemon, Larsen & Purdy, Chicago, Ill., for plaintiffs-appellees.

Before WOOD and COFFEY, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

HARLINGTON WOOD, Jr., Circuit Judge.

Defendant Commerce Savings Association ("Commerce") appeals the district court's order, 626 F.Supp. 650, enjoining it from prosecuting an action in Texas against plaintiffs Gilldorn Savings Association, Gilldorn Corporation, and Gilldorn Mortgage Midwest Corporation (collectively "Gilldorn") on the ground that the Texas action should have been brought as a compulsory counterclaim in Gilldorn's Illinois action against Commerce. Gilldorn had previously moved for dismissal in the Texas action and had made the compulsory counterclaim argument, along with several other arguments, unsuccessfully. Gilldorn then moved for an injunction in the Illinois action based solely on the compulsory counterclaim argument. The Illinois district court decided that the Texas decision on Gilldorn's dismissal motion was not a final judgment for collateral estoppel purposes. The district court then determined that Commerce's Texas action should have been brought as a compulsory counterclaim in the Illinois action and therefore enjoined Commerce from further prosecution of the Texas action. Because the Illinois district court should have given collateral estoppel effect to the Texas district court's denial of Gilldorn's dismissal motion, we reverse the Illinois district court's grant of an injunction.

I.

In June 1983, Commerce sold the Percy Wilson Mortgage and Finance Company ("PWM," now renamed Gilldorn Mortgage Midwest Corporation and one of the plaintiffs-appellees here) to Gilldorn pursuant to a Stock Purchase Agreement executed by Commerce, Gilldorn Savings Association (the "Association") and Gilldorn Corporation. In May 1984, Gilldorn informed Commerce that it was experiencing financial difficulty. Commerce agreed to exchange the five million dollar Gilldorn Savings Association subordinated debenture Commerce had acquired in the sale of PWM for five million dollars of the Association's preferred stock.

On January 31, 1985, Gilldorn sued Commerce in an Illinois district court seeking damages for fraud, securities violations, and breach of warranty allegedly committed by Commerce in selling PWM to Gilldorn in July 1983. ¹ On February 13, 1985, Commerce filed an action in Texas against Gilldorn seeking rescission of the May 1984 exchange of Association subordinated debentures for preferred stock. ²

In April 1985, Gilldorn moved to dismiss Commerce's Texas action pursuant to Fed.R.Civ.P. 13(a) and 12(b)(6). Gilldorn's motion contended that Commerce's claims in the Texas action could only have been brought as compulsory counterclaims in the Illinois action and that each count of Commerce's complaint failed to state a claim for various reasons. The Texas district court denied Gilldorn's motion to dismiss on September 30, 1985. On October 11, 1985, Gilldorn filed a motion in the Illinois district court to enjoin Commerce from further prosecution of the Texas action. Gilldorn based its motion on the compulsory counterclaim argument. Commerce responded by arguing that Gilldorn was collaterally estopped from relitigating the compulsory counterclaim issue, that as a matter of judicial comity the Illinois court should refrain from enjoining the Texas action, and that Commerce's claims in the Texas action are not counterclaims. On November 19, 1985, the Illinois district court granted Gilldorn's motion and enjoined Commerce from further prosecuting the Texas action. The Illinois court decided that the Texas court's decision was not a final judgment and therefore not entitled to collateral estoppel effect, that the doctrine of judicial comity was inapplicable, and that Commerce's claims in Texas were compulsory counterclaims which should have been brought in the Illinois action.

Commerce appeals from the injunction. Commerce argues that the Texas court's denial of Gilldorn's motion to dismiss was a final resolution of the compulsory counterclaim issue which collaterally estops Gilldorn from relitigating that issue in Illinois. Commerce also argues that the Illinois district court erred in deciding that Commerce's claims in the Texas action are compulsory counterclaims which should have been raised in the Illinois action.

II.

"Collateral estoppel, which is also known as issue preclusion, generally prevents a party from relitigating an issue the party has already litigated and lost." Ferrell v. Pierce, 785 F.2d 1372, 1384 (7th Cir.1986). "In general, collateral estoppel precludes relitigation of issues in a subsequent proceeding when: (1) the party against whom the doctrine is asserted was a party to the earlier proceeding; (2) the issue was actually litigated and decided on the merits; (3) the resolution of the particular issue was necessary to the result; and (4) the issues are identical." Kunzelman v. Thompson, 799 F.2d 1172, 1176 (7th Cir.1986). Accord County of Cook v. Midcon Corp., 773 F.2d 892, 898 (7th Cir.1985). The policy underlying the doctrine is that "one fair opportunity to litigate an issue is enough." Bowen v. United States, 570 F.2d 1311, 1322 (7th Cir.1978). The party asserting estoppel has the burden of establishing which issues were actually determined in his favor in the prior action. Davis & Cox v. Summa Corp., 751 F.2d 1507, 1518 (9th Cir.1985). See Jones v. City of Alton, 757 F.2d 878, 885 (7th Cir.1985).

It is undisputed that the parties in this action also were involved in the Texas litigation and that the identical compulsory counterclaim issue was raised and actually litigated in the Texas action. The two issues remaining are: (1) whether the Texas ruling constitutes a "final judgment" for collateral estoppel purposes; and (2) whether the Texas court actually and necessarily decided the compulsory counterclaim issue.

A. Final Judgment

Gilldorn argues that the Texas order is not a "final judgment" for collateral estoppel purposes. Gilldorn contends that the Texas order is not "firm and stable enough" because no oral argument preceded the court's ruling, the Texas court did not support its decision with an opinion, and the denial of the dismissal motion was not appealable. Commerce contends that the interlocutory nature of the order does not prevent it from precluding relitigation of issues actually decided. Commerce asserts that the only relevant question is whether the issue was actually resolved in the prior action. Both parties agree that finality for collateral estoppel is not the same as that required to appeal under 28 U.S.C. Sec. 1291 (1982), and both cite Miller Brewing Co. v. Joseph Schlitz Brewing Co., 605 F.2d 990 (7th Cir.1979), cert. denied, 444 U.S. 1102, 100 S.Ct. 1067, 62 L.Ed.2d 787 (1980), as support for their arguments.

In Miller, this court gave preclusive effect to its own decision on an issue raised in the appeal from a preliminary injunction order in a prior case involving Miller and a third brewery. The Miller court discussed several factors to be considered to determine whether a decision is "final" for collateral estoppel purposes: that the decision was not "avowedly tentative," that the hearing was adequate and the parties were fully heard, that the court supported its decision with a reasoned opinion, and that the decision was appealable or had been appealed. 605 F.2d at 996. The ultimate question is whether the " 'prior adjudication ... is determined to be sufficiently firm to be accorded conclusive effect.' " Id. (quoting Restatement (Second) of Judgments Sec. 41 comment g (Tent. Draft No. 1 1973)). Accord In re Cenco Inc. Securities Litigation, 529 F.Supp. 411, 416 n. 5 (N.D.Ill.1982) ("The relevant question is whether the issue has been resolved in the prior action so that the Court has no good reason to permit it to be litigated again."); American Postal Workers Union v. United States Postal Service, 736 F.2d 317, 319 (6th Cir.1984) (final judgment in the case as a whole is not necessary; motion to dismiss decision can be given preclusive effect as long as issue finally decided).

The Texas court's decision here is sufficiently firm to preclude further litigation of the compulsory counterclaim issue. Nothing in the order itself or in the record indicates that the order was tentative. Although the motion was not orally argued, the issue was fully briefed. In support of its motion, Gilldorn filed three briefs totalling approximately thirty pages, one-third of which addressed the compulsory counterclaim issue. Commerce filed two briefs totalling approximately twenty-one pages, half of which addressed the counterclaim issue. The Texas court's order indicates that the court "considered the arguments and authorities submitted on behalf of the parties." The parties thus had sufficient opportunity to be heard on the issue, and the judge was amply advised of the arguments on both sides of the issue to allow him to make a reasoned decision. See Jones, 757 F.2d at 885.

Gilldorn also had ample incentive to vigorously assert the compulsory counterclaim argument as success would have meant dismissal of Commerce's action in Texas. See Kunzelman, at 1177 ("Critical to the application of collateral estoppel is the guarantee that the party sought to be estopped had the opportunity and the incentive to litigate the issue aggressively."); Ferrell, 785 F.2d at 1385 (exception to collateral estoppel where issue not recognized by part...