Disher v. Information Resources, Inc.

• Decision Date: 29 March 1989
• Docket Number: No. 88-2187,88-2187
• Citation: 873 F.2d 136
• Parties: David C. DISHER, Plaintiff-Appellee, v. INFORMATION RESOURCES, INC., et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 136

873 F.2d 136

David C. DISHER, Plaintiff-Appellee, v. INFORMATION RESOURCES, INC., et al., Defendants-Appellants.

No. 88-2187.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 23, 1989.

Decided March 29, 1989.

William E. Snyder, Chadwell & Kayser, Ltd., Chicago, Ill., for defendants-appellants.

William E. Rattner, Hopkins & Sutter, Chicago, Ill., for plaintiff-appellee.

Before BAUER, Chief Judge, and POSNER and RIPPLE, Circuit Judges.

POSNER, Circuit Judge.

This appeal by the defendants from a judgment dismissing the suit against them without prejudice, reported at 691 F.Supp. 75 (N.D.Ill.1988), requires us to decide issues of appealability and pendent jurisdiction. The plaintiff, David Disher, while employed by the corporate defendant, Information Resources, Inc. (IRI), was permitted to buy stock in the corporation (which at the time was closely held) but required to place the stock in a voting trust controlled by officers of IRI, who are the other defendants. IRI fired Disher in 1983. He tried to get his shares out of the voting trust, but the officers refused to release them, precipitating this suit and a parallel suit in state court, both filed in 1983. In the federal suit Disher sought damages on a variety of federal and state grounds, in the state suit equitable relief on state grounds. The state suit proceeded first, and through it Disher eventually succeeded in getting his shares out of the voting trust and selling them for more than $1 million. He then activated his federal suit, claiming that but for the defendant officers' breach of their fiduciary obligations to him he would have been able to sell the stock earlier, when its market price was higher, and would have made an extra $236,000. The corporate defendant is not involved in these claims, so from now on when we say "defendants" we mean the officers.

The defendants moved for summary judgment. The district judge granted the motion with respect to all of Disher's federal law claims (antitrust, securities fraud, racketeering). This left four pendent state law claims, all charging breaches of fiduciary obligation. Ordinarily the judge would have relinquished jurisdiction over these claims, the federal claims having dropped out before trial. See, e.g., Carnegie-Mellon University v. Cohill, 484 U.S. 343, 108 S.Ct. 614, 618-19 and n. 7, 98 L.Ed.2d 720 (1988); United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966). But because the case had been pending for five years, and because the facts underlying the state law claims were essentially the same as those underlying the federal claims (indeed, one of the state law claims supplied one of the predicate offenses in Disher's RICO claim), the judge decided to retain jurisdiction. With regard to two of the state law claims, he granted the defendants' motion for summary judgment and dismissed the claims with prejudice. With regard to the other two claims, however--Count IV(iii) and Count IV(iv)--he denied the motion for summary judgment, noting that the central issue raised by the motion had not been briefed adequately and adding that the defendants had failed to demonstrate the absence of a triable issue.

Count IV(iii) charged that the defendants had breached their fiduciary obligation to Disher as a shareholder by improperly refusing to rescind the voting trust after Disher had made a timely demand for rescission. In moving for summary judgment the defendants did not deny they had acted improperly--for this clearly presented a triable issue--but argued that there is no fiduciary obligation to rescind a voting trust and that in any event this trust could not be rescinded, because the state court had ruled the trust void ab initio. The district judge disagreed with both points.

Count IV(iv) charged that two of the defendant officers had violated their fiduciary obligation to Disher by amending the voting trust to prevent him from withdrawing his shares as early as he was entitled to. These defendants argued that since the trust had been void from the start it could create no fiduciary duties, and that anyway Disher had incurred no damages since he had sold his shares for $1 million and they had cost him only $18,000. The judge, however, held that these defendants owed Disher fiduciary obligations not merely as trustees of the voting trust but also as officers of the corporation, and that Disher was entitled to the additional profit he would have made had he been able to sell his shares when their value peaked, as he was prevented from doing by the defendants' breach of their fiduciary obligations to him.

When a motion by defendants for summary judgment is denied, ordinarily the next step is the trial (sometimes, further discovery leading to a renewed motion); for the defendants have failed to negate the existence of a triable issue. In this case, however, the district judge decided it would not be "appropriate to retain jurisdiction over Counts IV(iii) and IV(iv) for further proceedings.... Judicial economy was served by resolving all issues--federal and state--in the motion for summary judgment. It will not be further served by retaining jurisdiction over the state law claims. The state court had a trial on the merits of a claim identical to Count IV(iv). The state court was ready and willing to reach the issue of damages, but plaintiff urged that court not to decide damages. On a claim similar to Count IV(iii) the [Illinois] Appellate Court remanded the case for determination of an appropriate remedy.... The state court, having completed trials of this case on the merits, having also conducted hearings on preliminary injunctions, and now having the case on remand, is more familiar with the facts of the case than this court. Moreover, state law claims are more appropriately resolved in state court. Therefore, Counts IV(iii) and IV(iv) are dismissed without prejudice." 691 F.Supp. at 87.

Only the defendants appeal. They do so even though the entire case was dismissed and all but Counts IV(iii) and (iv) dismissed with prejudice. They argue that they were entitled to have those two claims also dismissed with prejudice. The plaintiff, unaware of our recent decision in LaBuhn v. Bulkmatic Transport Co., 865 F.2d 119 (7th Cir.1988), argues that a dismissal without prejudice is not appealable at the behest of a defendant, because it is not an adverse judgment. LaBuhn rejected this argument, pointing out that either party can appeal from a judgment not entirely in its favor and that a dismissal without prejudice, by subjecting the defendant to the risk (here, as in LaBuhn, the certainty) of further litigation, is not entirely in the defendant's favor any more than a judgment for $1 million would be entirely in favor of a plaintiff who believed he was entitled to a judgment for $1,236,000 (to pick a number at random). See id. at 121-22. But it may be helpful to add a few words in elaboration of LaBuhn.

The cases are legion which hold that the winner in the trial court cannot appeal just because the court's opinion contains statements adverse to him. See, e.g., California v. Rooney, 483 U.S. 307, 107 S.Ct. 2852, 97 L.Ed.2d 258 (1987) (per curiam). But that is not the defendants' plaint; it is that the decision below condemns them to additional litigation in state court. No more than in LaBuhn need we choose between the view that an adverse finding contained in a favorable judgment may be appealed because it might be used as the basis for collateral estoppel in a subsequent suit, and the view that either such a finding has no collateral estoppel effect because it is not essential to the judgment or that by making it nonappealable we can deprive it of any collateral estoppel effect, since unless it is appealable the defendant was denied an opportunity to contest it fully in the previous litigation. Since the dismissal here was without prejudice, the judge's findings have no possible preclusive effect. The only question is whether the prospect of further litigation confers standing on a winning defendant to appeal from such a dismissal, on the ground that he was entitled to a dismissal with prejudice.

The leading precedent against allowing appeal from a dismissal without prejudice is Parr v. United States, 351 U.S. 513, 516-20, 76 S.Ct. 912, 914-17, 100 L.Ed. 1377 (1956), which holds that the dismissal of an indictment without prejudice is not appealable. The Court implied that the discomfiture and cost of trial on a superseding indictment do not confer finality on such a dismissal, see id. at 519-20, 76 S.Ct. at 916-17, but the facts of the case suggest a narrower interpretation. As is common when indictments are dismissed before trial, Parr had been reindicted, making the dismissal of the first indictment, as the Court emphasized, "but an interlocutory step in this prosecution," id. at 518, 76 S.Ct. at 916, and thus bringing into play the particularly strong policy against piecemeal appeals in criminal cases, on which see, e.g., Flanagan v. United States, 465 U.S. 259, 104 S.Ct. 1051, 79 L.Ed.2d 288 (1984); Deaver v. United States, 483 U.S. 1301, 107 S.Ct. 3177, 97 L.Ed.2d 784 (1987) (Rehnquist, C.J., in chambers). The situation is different where, as in this case, the dismissal without prejudice winds up the litigation in the federal court system. True, the litigation continues in the state courts. But an order that ends litigation in one dispute-resolution system is final and appealable even though it kicks off litigation in another. University Life Ins. Co. of America v. Unimarc Ltd., 699 F.2d 846, 848-50 (7th Cir.1983); Graphic Communications Union v. Chicago Tribune Co., 779 F.2d 13, 14-15 (7th Cir.1985). Read more broadly than this, Parr would be inconsistent with Supreme Court decisions that hold that the burden of possible further litigation if the judgment is not modified gives the winning party standing to appeal. See Deposit...