Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

• Email This
• Print
• Comments
• Trackbacks
• Share Link

MUHAMMAD v. OLIVER (November 10, 2008)

The Dennis Muhammad Community and Economic Development Corporation (“MDC”) is a Chicago-based minority business enterprise. It entered into a joint venture agreement with CDA Management (“CDAM”). The purpose of the venture was to bid on a contract to install air conditioners in Chicago Housing Authority (“CHA”) buildings. Their bid was successful but the relationship quickly soured. In 2002, MDC sued CDAM and the related non-profit Chicago Dwellings Association (“CDA”). MDC alleged, in a state court action, that the defendants breached the joint venture agreement by not allowing MDC to do the work it had agreed to do. The court granted CDA’s motion to dismiss on the ground that CDA was not a party to the agreement. Later, on MDC’s own motion, the court dismissed MDC’s complaint against CDAM without prejudice. In 2007, MDC brought suit in federal court against CDA, CDAM, and Christine Oliver. Oliver was the CEO of both CDA and CDAM. MDC repeated the same allegations it had made in the earlier state court suit. It added an allegation under § 1981 that the defendants had used MDC as a “minority front” to increase their chances of success on the bid for the CHA contract. The district court dismissed CDA and CDAM on res judicata grounds and dismissed Oliver because she was not a party to the joint venture. MDC appeals.

In their opinion, Judges Cudahy, Posner, and Rovner affirmed. The Court observed that, although the two complaints relied to some extent on different legal theories, they did both arise out of the same facts. When a prior case arising out of the same facts is abandoned after an adverse ruling, as the Court concluded the state court suit was, the judgment generally bars a later suit. When there are multiple defendants, as is here, the bar against one operates as a bar against all, if they arose out of the same facts. The Court found that all three defendants were alleged to be in violation of § 1981 for the identical conduct. The Court concluded that the earlier suit barred the federal complaint against all defendants. The Court also rejected MDC’s argument that there had been a stipulation to reserve all rights upon dismissal. The Court concluded that there was no evidence, or even allegation in the complaint, of such an agreement. Finally, the Court rejected MDC’s claim that the lower court erred by dismissing on res judicata grounds when a) the defendants never raised it and b) it is not one of the FRCP 12(b) defenses that are allowed to be raised by motion . The Court held that the dismissal was proper. The application of res judicata eliminates unnecessary lawsuits. It can be raised by the court on its own motion. Also, when an affirmative defense like res judicata is shown on the face of the complaint, it can be dismissed on motion.

The Court did conclude that the court below erred in dismissing Oliver on the grounds that she was not a party to the joint venture agreement. A claim of tortious interference with contractual rights on account of race does state a cause of action under § 1981. Nevertheless, Oliver is still entitled to dismissal. First, the Court pointed to its prior discussion of res judicata. The dismissal of the state court complaint barred a cause of action against any defendant arising out of the same facts. Oliver’s does. Second, when liability rests on the doctrine of respondeat superior, as it does here, the plaintiff cannot bring an action against the “servant” (Oliver) when judgment has already been entered for the “master” (CDA, CDAM). Third, and most significantly, the Court concluded that the complaint did not actually allege tortious interference on account of race. The Court stated that the allegation that the defendants included MDC to gain a bidding advantage, and then cheated them out of that advantage, did not allege racial discrimination. The Court observed that it was greed, not discrimination, that drove the defendants’ decision. The district court’s result was correct.