Shaver v. F.W. Woolworth Co.

• Decision Date: 05 May 1988
• Docket Number: No. 87-1043,87-1043
• Citation: 840 F.2d 1361
• Parties: , 3 Indiv.Empl.Rts.Cas. 46 Frank W. SHAVER, Plaintiff-Appellant, v. F.W. WOOLWORTH CO., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1361

840 F.2d 1361

56 USLW 2572, 3 Indiv.Empl.Rts.Cas. 46

Frank W. SHAVER, Plaintiff-Appellant, v. F.W. WOOLWORTH CO., Defendant-Appellee.

No. 87-1043.

United States Court of Appeals, Seventh Circuit.

Argued May 26, 1987.

Decided March 2, 1988.

Rehearing and Rehearing En Banc Denied May 5, 1988.

Walter F. Kelly, Sutton & Kelly, Milwaukee, Wis., for plaintiff-appellant.

P. Kevin Connelly, Lederer, Reich, Sheldon & Connelly, Chicago, Ill., for defendant-appellee.

Before WOOD, CUDAHY, and COFFEY, Circuit Judges.

COFFEY, Circuit Judge.

Plaintiff-appellant Frank B. Shaver appeals the district court's grant of summary judgment in favor of the defendant-appellee F.W. Woolworth Company on his claim that Woolworth breached its contract of employment with him, 669 F.Supp. 243. We affirm.

I.

On September 24, 1982, the F.W. Woolworth Company ("Woolworth") announced that it would close its Woolco division, consisting of 336 stores. At the time of the announcement, plaintiff-appellant Frank Shaver ("Shaver") worked as a leasing specialist at Woolworth's Central Accounting Office ("CAO") in Milwaukee, Wisconsin. The Woolco shut-down resulted in the layoff of 183 employees in the CAO. On October 27, 1982, company officials informed Shaver at a group meeting that he was among a group of employees that would be laid off during the next several months. Woolworth asked some of those employees, including Shaver, to remain for a period of time to assist in the winding down process. Shaver was terminated on June 30, 1983.

Shaver began his employment with Woolworth in September, 1962. Upon his transfer to the CAO in June, 1972, Shaver filled out an employment application and signed his name to the following statements:

"On my engagement by F.W. Woolworth Company, this application is evidence that I agree to conform to the rules and regulations of F.W. Woolworth Company, that my engagement can be terminated at any time by F.W. Woolworth Company, I being likewise at liberty to so terminate it. Any agreement entered into between the Company and the applicant is predicated upon truthfulness of the statements herein contained."

A booklet given to Mr. Shaver by Woolworth initially governed the terms of Mr. Shaver's employment at the CAO. It provided in part:

"Like most organizations with long histories, we have developed policies and procedures that years of experience have proven to be productive. This booklet will assist you in understanding some of these policies and procedures, and will explain many aspects of your duties in the Central Accounting Office. It will tell you what we expect from you, and what you may expect from us."

(Emphasis added). In March, 1982, a CAO employee handbook replaced the prior booklet. Documents submitted in response to Woolworth's motion for summary judgment establish that Mr. Shaver verified his receipt of the handbook on a written acknowledgment form, and returned it to the CAO personnel department. The first page of the handbook contained virtually the identical language as its predecessor:

"This booklet will assist you in understanding our policies and procedures, and will explain many aspects of your duties in the Central Accounting Office. It will tell you what we expect from you, and what you may expect from us."

At page 12, the employee handbook contained the following seniority layoff provision:

"Your seniority is important to you and to the Central Accounting Office and it means the length of time you have worked for us since your most recent date of hire. Seniority, along with ability and performance, is an important factor for job transfer and promotion opportunities. In the history of the CAO, the need to reduce the number of employees has occurred on rare occasions--and even then, only a few employees were affected. It is important for you to know that if a reduction of staff should be necessary, layoff and recall after layoff will be determined on the basis of seniority and an employee's skill and ability to do the available work. Where the factors are relatively equal among several employees, those with the greatest seniority will be given preference over those employees with less seniority."

(Emphasis added). The handbook concluded:

"In closing, the information in this handbook has been prepared as a convenient reference for your use at work or at home. These are today's policies and rules--it is safe to say, our practice is to continually review and revise them as needed--always keeping in mind the needs of the people who make up the organization."

At trial, Shaver contended that the statements contained in the employee handbook created a contract between Shaver and Woolworth, a contract Woolworth breached when it laid off Shaver without following the seniority provisions contained on page 12 of the handbook. The deposition testimony of CAO officials supports Shaver's argument that Woolworth failed to follow the handbook's seniority provision during the layoff of CAO employees. As an example, Les Zoch, general manager and controller of the CAO, testified that in determining which employees to lay off, Woolworth officials did not discuss the possible applicability of the seniority provisions due to the press of time and the need to "cut to the bone." Further, Gerald Nelson, CAO salary administrator at the time of the layoffs, testified that Zoch told him that because the Woolco closing was a "rather unique situation," Woolworth did not apply the seniority provisions to the layoffs.

On May 2, 1984, Shaver commenced an action in federal district court (Shaver I ), alleging that his discharge violated the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. Sec. 621 et seq. Shaver's complaint also joined pendent state claims. On August 21, 1985, the trial judge granted Woolworth's motion for summary judgment on the ground that Shaver failed to file his federal ADEA claim timely; further, the court declined to exercise pendent jurisdiction over the remaining state claims. Shaver neither attempted to allege an alternative jurisdictional basis in an attempt to pursue his state law contract claims, nor did he appeal the court's entry of judgment in Woolworth's favor.

Subsequently, on February 13, 1986, Shaver filed a second lawsuit against Woolworth, this time in the Circuit Court for Milwaukee County, Wisconsin, alleging breach of contract and negligent employment termination under Wisconsin law, as well as a violation of the Wisconsin Fair Employment Practices Act. Woolworth, over Shaver's objection, successfully removed the lawsuit to federal court pursuant to 28 U.S.C. Secs. 1332, 1441 on the basis of diversity of citizenship. Woolworth moved for summary judgment with respect to each of Shaver's claims after the parties had completed their supplemental discovery. In its motion, Woolworth argued that it was entitled to summary judgment on the merits, and furthermore Shaver's action was barred under the doctrine of res judicata. The district court, agreeing with Woolworth's substantive argument that the terms of the employee handbook did not impose a contractual limitation on Woolworth's right to terminate Shaver's employment, entered judgment in favor of Woolworth, but did not address Woolworth's contention that the second lawsuit was foreclosed under res judicata principles.

II.

Although the district court did not consider the issue, we believe that before attempting to resolve issues involving the state law of Wisconsin (Shaver's claims for breach of contract and negligent employment termination under Wisconsin law), it is appropriate to address Woolworth's argument that the doctrine of res judicata bars this lawsuit: Shaver's second action against Woolworth. Woolworth maintains that res judicata operates to forbid this action because in Shaver I, Shaver could have, but chose not to, allege the existence of an alternative basis for subject matter jurisdiction after the district court dismissed his pendent state claims along with his federal ADEA claim. According to Woolworth, once the federal court dismissed Shaver's federal claim, he could have alleged diversity of citizenship as a jurisdictional basis ¹ in order that he might pursue any state law theories of recovery arising out of the same occurrence, and under the doctrine of res judicata his failure to pursue state law claims for relief prevents him from attempting to litigate those claims in the present lawsuit.

Woolworth's contention--that Shaver's failure to allege the existence of diversity jurisdiction in Shaver I bars this state law breach of contract action--relies on the crucial distinction between the preclusive effect of res judicata and collateral estoppel. In contrast to collateral estoppel, which bars issues actually litigated and decided in a previous lawsuit, the doctrine of "res judicata bars not only those issues which were actually decided in the prior action but also any issues which could have been raised." Lee v. City of Peoria, 685 F.2d 196, 198 (7th Cir.1982) (citing Whitley v. Seibel, 676 F.2d 245, 248 (7th Cir.1982)) (emphasis added). Woolworth's argument requires us to determine whether or not a plaintiff who initially sues in federal court must attempt to join all theories of relief arising under state law in a single proceeding if and when a jurisdictional basis for doing so exists.

In determining whether or not Shaver's prior Age Discrimination suit (based on the same core of operative facts as this lawsuit) bars him from maintaining this state law cause of action, we note the holding of Matter of Energy Cooperative, Inc., 814 F.2d 1226, 1230 (7th Cir.), cert. denied, --- U.S. ----, 108 S.Ct. 294, 98 L.Ed.2d 254 (1987): when "the prior litigation was brought in federal court, the federal rule of res judicata " applies. The Court in Brown v. J.I. Case Co., 813 F.2d 848 (7th Cir.), cert. denied, --- U.S. ----, 108 S.Ct. 258, 98 L.Ed.2d 215 (1987) set forth the essential...