Golden v. Barenborg

• Decision Date: 29 June 1995
• Docket Number: No. 94-3625,94-3625
• Parties: Bruce P. GOLDEN, Plaintiff-Appellant, v. David BARENBORG and Salomon Brothers, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 866

53 F.3d 866

Bruce P. GOLDEN, Plaintiff-Appellant, v. David BARENBORG and Salomon Brothers, Inc., Defendants-Appellees.

No. 94-3625.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 15, 1995.

Decided May 12, 1995.

Rehearing and Suggestion for Rehearing

En Banc Denied June 29, 1995.

Jody B. Rosenbaum, Bruce Golden (argued), Golden & Associates, Chicago, IL, for Bruce P. Golden.

Michael J. Duhig, Coldwell Banker Residential Real Estate, Oak Brook, IL (argued), for David Barenborg and Salomon Bros., Inc.

Before WOOD, Jr., FLAUM, and EASTERBROOK, Circuit Judges.

HARLINGTON WOOD, Jr., Circuit Judge.

This is a diversity action brought by appellant Bruce Golden [Golden] appealing the district court's finding that the appellees David Barenborg [Barenborg] and Salomon Brothers, Inc. [Salomon], were not vicariously liable for the actions of Coldwell Banker [Coldwell] in the sale of Barenborg's home to Golden. Golden first sued Coldwell alleging Coldwell misrepresented material facts about the home's condition, which if disclosed would have dissuaded him from purchasing the residence. Specifically, Golden alleged fraud, negligent misrepresentation, and consumer fraud pursuant to Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2 et seq. (Smith-Hurd 1995), formerly cited as ILL.REV.STAT. ch. 121 1/2, para. 262 et seq. (1991). Golden subsequently settled and released his claim against Coldwell. Golden then pursued the matter in a new suit against the appellees contending the appellees were vicariously liable under the same claims because Coldwell acted as their agent. In the second suit, Golden additionally alleged the appellees were vicariously liable for Coldwell's breach of an addendum to the Golden-Coldwell sale contract and breach of warranty against Barenborg. The Magistrate Judge held the claims were barred by res judicata. On appeal, the district court found res judicata was not applicable because no settlement stipulation of dismissal with prejudice had been filed. ¹ The district court, however, affirmed the Magistrate Judge on the grounds that under Illinois law the appellees were not vicariously liable for the actions of Coldwell whether or not Coldwell was considered an agent. Golden appeals.

I.

In the fall of 1990, Barenborg was employed by Salomon Brothers. When Salomon transferred Barenborg from Illinois to New York, Salomon engaged Coldwell to sell Barenborg's home. Pursuant to an ongoing agreement, Coldwell Banker Relocation Management Services purchased residences of relocated Salomon employees at fair market value, subject to additional payment if the home was resold at a higher price. Coldwell Banker Real Estate, Inc., would then remarket the residences.

Coldwell purchased Barenborg's home for $330,000.00 by Warranty Deed, but left blank the portion of the deed for the naming of a future grantee. The contract of sale between Barenborg and Coldwell provided that legal title would pass directly from Barenborg to the ultimate buyer. On April 1, 1991, Golden purchased Barenborg's residence through Coldwell for $280,000.00. Soon after buying the home, Golden alleged he discovered several latent defects in the structure and condition of the home. In June 1991, Golden brought suit against Coldwell alleging common law fraud (Count I), negligent misrepresentation (Count II), and a violation of the Illinois Consumer Fraud and Deceptive Business Practice Act, 815 ILCS 505/2 et seq. (Smith-Hurd 1995), formerly cited as ILL.REV.STAT. ch. 121 1/2, para. 262 et seq. (Count III).

Golden claimed that Coldwell knowingly made misrepresentations to him concerning the condition of the home in an effort to induce Golden to buy the home. Specifically, he alleged that Coldwell represented Barenborg was employed by AT & T and was not reachable; that plans and specifications for prior remodeling work on the home were not available; and that Coldwell had no inspection reports or other documents it had not already provided to Golden. Further, Golden claimed that Coldwell was aware of material facts which it had an affirmative duty to disclose pursuant to the Illinois Real Estate License Act of 1983, 225 ILCS 455/1 et seq. (Smith-Hurd 1995), formerly cited as ILL.REV.STAT. ch. 111, Secs. 5801 et seq. He alleged that Coldwell failed to disclose that the home had no concrete floor in the basement or concrete foundation; that it had extensive termite damage; that Coldwell had commissioned an inspection report incident to the purchase from Barenborg which disclosed most of the defects and violations of the City of Chicago building code; and that the report "strongly recommended" a structural analysis of the foundation be conducted. Golden claimed reasonable diligence would not have disclosed the defects because the damage was hidden in new flooring, exterior siding, and interior walls. Golden asserted that if the home's true condition had been disclosed, he would not have purchased it.

In Golden's complaint he requested actual damages in excess of $80,000.00, but on the eve of the trial, Coldwell and Golden settled for $60,000.00. In exchange, Golden executed a Mutual Release ² agreeing to dismiss his complaint with prejudice against Coldwell. The parties informed the court they were settling and the court issued an order terminating the case. ³ Neither party, however, filed with the court the stipulated dismissal of the suit with prejudice.

Approximately a month after the settlement, Golden initiated this action against the appellees Salomon Brothers and Barenborg. Golden alleged the same claims he previously did against Coldwell, but now contended that Barenborg and Salomon were vicariously liable because Coldwell acted as their agent. Specifically the complaint alleged common law fraud (Count I), negligent misrepresentation (Count II), and a violation of the Consumer Fraud Act (Count III). Golden also alleged that Coldwell had breached an addendum to its real estate contract with Golden (Count IV). The addendum provided that if Golden notified Coldwell of unacceptable defects within fourteen days of signing the contract, Coldwell would repurchase the house or reimburse Golden for repair costs. Golden claimed he notified Coldwell within the fourteen days and Coldwell did not perform as required under the addendum. In regards to the first four counts, Golden claimed Coldwell acted as an agent for the appellees, and therefore the appellees were vicariously liable for Coldwell's failure to disclose the aforementioned defects in the home and for breach of contract. Golden added a fifth claim against Barenborg for breach of warranty (Count V). Golden alleged that in the contract of sale between Barenborg and Coldwell, Barenborg warranted the home was free of termite damage. Golden claimed he was a third party beneficiary of the contract because Barenborg knew that the intended and direct beneficiary of the warranty was the ultimate purchaser of the home.

Appellees filed a joint motion to dismiss Golden's complaint pursuant to Rule 12(b)(6). The Magistrate Judge granted appellee's motion, which she treated as a motion for summary judgment. Under the doctrine of res judicata, the Magistrate Judge found that Counts I-V were barred. Golden v. Barenborg, No. 91 C 5359, 1992 WL 162977, at * 7 (N.D.Ill. July 6, 1992). ⁴ Golden appealed to the district court. The district court held that because a stipulation of dismissal with prejudice was not filed with the court, the issue of res judicata need not be reached. Golden v. Barenborg, 850 F.Supp. 716, 720 (N.D.Ill.1994). As to Counts I-IV, the district court held that under Illinois law, whether or not Coldwell was an agent for the appellees, there could be no vicarious liability. Id. at 722. The court also found that Golden was not a third party beneficiary. Id. at 724.

II.

Golden contends that because the Magistrate Judge's stay of discovery was never lifted, the district court consequently found that Golden had shown no facts to establish the appellees had acted unlawfully independent of Coldwell. Therefore, Golden's argument centers on the lack of discovery which he claims could have changed the outcome of the case. We find, however, that Golden is barred by the principles of res judicata in maintaining this action against the appellees. The district court determined that under McCall-Bey v. Franzen, 777 F.2d 1178, 1185 (7th Cir.1985), a stipulation of dismissal with prejudice had to be filed with the court in order for the dismissal to be effective. Although in McCall-Bey, the court found that the filing of a stipulation was important and not a mere technicality, the court further recognized that a situation might arise, where in order to prevent injustice, filing would not be necessary. Id. The court stated: "We need not consider whether the requirement of filing may be waived in particular cases if necessary to prevent injustice, as none of the parties asks that it be waived here." Id. This case poses a situation where, in our view, such formality is not required. Magistrate Judge Bucklo was aware that the prior suit against Coldwell had been dismissed with prejudice because the "Mutual Release" agreement between Golden and Coldwell clearly stated that it terminated the prior lawsuit "with prejudice." In her order, Magistrate Judge Bucklo stated:

Here, the stipulation of dismissal contained in the release signed by Mr. Golden, stated the agreement of the parties to dismiss the suit before Judge Duff. That release explicitly stated that the dismissal was to be with prejudice.

Golden, 1992 WL 162977 at * 6.

Further, Magistrate Judge Bucklo was aware that in the transcripts of the proceedings before Judge Duff, who presided over the Coldwell-Golden suit, Judge Duff stated on the record that he understood the dismissal to be with prejudice. ⁵ Golden, 1992 WL 162977 * 6 & n. 5. The purpose of filing a stipulation of dismissal...