Hicks, Hal D. v. Midwest Transit Inc ( 2007 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 06-2579
HAL D. HICKS,
Plaintiff-Appellant,
v.
MIDWEST TRANSIT, INC.,
an Illinois Corporation,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Southern District of Illinois.
No. 02 C 4028—J. Phil Gilbert, Judge.
____________
ARGUED JANUARY 3, 2007—DECIDED MARCH 1, 2007
____________
Before KANNE, ROVNER and EVANS, Circuit Judges.
KANNE, Circuit Judge. Hal D. Hicks appeals the district
court’s grant of summary judgment to Midwest Transit,
Inc. on his claims of breach with regard to a promissory
note and a revolving line of credit. The district court held
that res judicata precluded Hicks’s claims based upon an
Illinois state court judgment. We agree.
I. BACKGROUND
A. Factual Background
Diane and C. Michael Witters were co-owners of Mid-
west, a freight trucking company, along with Hicks who
2 No. 06-2579
was also president and director. Hicks loaned personal
assets to Midwest from time to time, and monies paid from
Hicks to Midwest and vice versa were reflected on Mid-
west’s books in what the parties call the 2020 account. The
parties agree that Hicks lent Midwest $2.5 million under
the terms of a 1998 promissory note and that he also
maintained a revolving line of credit with Midwest.
Midwest was prosperous, but at some point the relation-
ship between Hicks and the Witters broke down. The
Witters discovered that Hicks had been engaging in ultra
vires activities,1 self dealing, and fraud. Despite the fact
that Hicks had taken much more out of the corporation
than he had put in, he claimed that Midwest was obligated
to repay him for the outstanding balance reflected in the
2020 account. The Witters, on the other hand, believed
that Hicks owed money to Midwest.
B. Procedural Background
In January 2000, the Witters filed a shareholders
derivative suit in the Circuit Court of Lawrence County,
Illinois. The Illinois state court found largely uncontra-
dicted evidence of fraud and oppressive activity on the part
of Hicks and placed Midwest in receivership, with Donald
Hoagland as receiver. On July 30, 2001, without
Hoagland’s knowledge, this case was filed on behalf of
Midwest against Hicks and the Witters by counsel that
Hicks had previously retained for Midwest. Hicks then
filed counterclaims for money allegedly owed on the
promissory note and revolving line of credit. Having
discovered the lack of communication between Midwest’s
prior counsel and Hoagland, Midwest dismissed its
1
Such activities include spending corporate assets on NASCAR
racing and keeping the prize money for himself.
No. 06-2579 3
complaint because it had actually been filed without its
authorization. Only Hicks’s counterclaims remain.2
Meanwhile, the Illinois state case proceeded to a bench
trial. The case reached its conclusion only after thirty-
seven days of testimony—multiple days of which were
spent on expert testimony regarding the 2020 account,
loans from Hicks to Midwest, and the repayment of such
loans.3 The state court purported to resolve all claims for
money loaned from Hicks to Midwest. In regard to the
2020 account, the court entered judgment in favor of
Midwest in the amount of $565,508.32. Hicks was denied
a stay of the Illinois state judgment pending appeal and
failed to post a supersedeas bond, making the judgment
final and enforceable against him.
Then, in this case, Midwest moved for summary judg-
ment under Federal Rule of Civil Procedure 56(c) claiming
res judicata precluded Hicks’s claims as they had already
been the subject of a final judgment in Illinois state court.
The district court held that the Illinois state court judg-
ment precluded Hicks’s claims in the present action and
granted Midwest’s motion for summary judgment.
II. ANALYSIS
The only issue before us is whether summary judgment
was proper against Hicks based on the res judicata effect
2
Midwest moved the district court to dismiss Hicks’s counter-
claims for want of subject matter jurisdiction. After an appeal to
and remand from this court, the district court ultimately
determined that there was diversity of citizenship between the
parties and that it had jurisdiction to hear the claims. See
Midwest Transit, Inc. v. Hicks, 79 Fed. Appx. 205 (7th Cir. 2003).
3
Also at this time, a third proceeding was underway in Florida
state court.
4 No. 06-2579
of the Illinois state court disposition. We review a district
court’s grant of summary judgment de novo and view all
facts in the light most favorable to the non-moving party.
Massy v. Johnson, 457 F.3d 711, 716 (7th Cir. 2006).
Summary judgment is proper when “there is no genuine
issue as to any material fact and . . . the moving party is
entitled to a judgment as a matter of law.” FED. R. CIV. P.
56(c).4
We apply the preclusion law of the state that rendered
the judgment to determine whether res judicata controls
this case. Matsushita Elec. Indus. Co., Ltd. v. Epstein, 516
U.S. 367, 373 (1996); E.B. Harper & Co., Inc. v. Nortek,
Inc., 104 F.3d 913, 921 (7th Cir. 1997); see also 28 U.S.C.
§ 1738 (extending preclusive effect to state court proceed-
ings in federal court). Under Illinois law, “a final judgment
on the merits rendered by a court of competent jurisdiction
acts as a bar to a subsequent suit between the parties
involving the same cause of action.” River Park, Inc. v. City
of Highland Park, 703 N.E.2d 883, 889 (Ill. 1998) (citing
Rein v. David A. Noyes & Co., 665 N.E.2d 1199, 1204 (Ill.
1996); Rodgers v. St. Mary’s Hosp., 597 N.E.2d 616, 620-21
(1992)).
Three requirements must be satisfied before res judicata
precludes a claim: “(1) there was a final judgment on the
merits rendered by a court of competent jurisdiction,
(2) there is an identity of cause of action, and (3) there is
an identity of parties or their privies.” Nowak v. St. Rita
4
Midwest argues that this case is more akin to a bench trial on
stipulated facts than a summary judgment disposition, in which
case we would review for clear error rather than de novo. As we
would reach the same conclusion under either standard of
review, we need not consider this argument. See Home Protective
Servs., Inc. v. ADT Security Servs., Inc., 438 F.3d 716, 718-19 (7th
Cir. 2006).
No. 06-2579 5
High Sch., 757 N.E.2d 471, 477 (Ill. 2001); River Park, 703
N.E.2d at 889 (citing Downing v. Chicago Transit Auth.,
642 N.E.2d 456, 458 (Ill. 1994)). Res judicata bars not only
issues that were actually raised in the prior proceeding,
but also issues which could have been raised in the prior
proceeding. River Park, 703 N.E.2d at 889. Federal courts
apply an exception to the res judicata rule. Res
judicata will not apply “if the plaintiff did not have a full
and fair opportunity to litigate his claim in state court. A
plaintiff is afforded a full and fair opportunity to litigate
his claims so long as the state court proceedings complied
with the minimum procedural requirements of the Due
Process Clause.” Licari v. City of Chicago, 298 F.3d 664,
667 (7th Cir. 2002) (internal citation omitted).
In this case, the three requirements for res judicata are
satisfied and the exception does not apply. There is clearly
an identity of parties as Hicks’s claims in Illinois state
court were against Midwest. Hicks argues, however, that
there was neither a final judgment on the merits nor an
identity of cause of action. He contends that the promis-
sory note and line of credit were not fully litigated because
there was no testimony as to the terms of either the note
or line of credit and insufficient findings of fact and
conclusions of law in the state court’s Final Judgment
Order. Hicks further suggests that the Illinois state court
severed all claims to be tried by a jury, and that his claims
on the promissory note and line of credit were included in
this severance.
The Illinois state bench trial included testimony regard-
ing the 2020 account and it was specifically addressed in
the Final Judgment Order. R. 61, Ex. A, B, E. It would not
be necessary for the court to make findings of fact as to the
exact terms of the promissory note and line of credit
because it determined that the amount of money that
Hicks improperly took from Midwest exceeded any out-
6 No. 06-2579
standing debts Midwest owed him. To the extent that
Hicks believes the evidence regarding the promissory note
and line of credit introduced in the state trial to be lack-
ing, he can blame no one but himself. As noted earlier, res
judicata applies not only to those claims that were actually
litigated in the prior proceeding, but also those that could
have been. River Park, 703 N.E.2d at 889.
Furthermore, the record bears out Midwest’s assertion
that the only claims severed from the trial were those
claims by Hicks against third parties, not claims by Hicks
against Midwest. The Lawrence County Circuit Court
stated that it was severing “the claims by Mr. Hicks
against the Witters and the Witters individually against
Mr. Hicks where they don’t have anything to do with the
corporation, Midwest Transit, Inc. Those issues will be
determined at a subsequent jury trial . . . .”5 R. 67, Ex. G.,
p. 96.
Hicks had a full and fair opportunity to litigate his claim
in state court, and the minimum procedural requirements
of the Due Process Clause were met. As Midwest’s counsel
said at oral argument: “Been there, done that. . . . [ This is
a case of ] would of, could of, should of.” All of the require-
ments for res judicata are satisfied and summary judg-
ment in favor of Midwest is proper.
III. CONCLUSION
For the foregoing reasons, the district court’s judgment
is AFFIRMED.
5
The Illinois state court dubbed these issues the “Billy Bob
issues,” because they largely dealt with a bar known as Billy
Bob’s.
No. 06-2579 7
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—3-1-07