{ "id": 1544495, "name": "DIVERSIFIED FINANCIAL SYSTEMS, INC., Plaintiff-Appellant, v. NANCY BOYD et al., Defendants-Appellees", "name_abbreviation": "Diversified Financial Systems, Inc. v. Boyd", "decision_date": "1997-02-25", "docket_number": "No. 4\u201496\u20140218", "first_page": "911", "last_page": "919", "citations": [ { "type": "official", "cite": "286 Ill. App. 3d 911" } ], "court": { "name_abbreviation": "Ill. App. Ct.", "id": 8837, "name": "Illinois Appellate Court" }, "jurisdiction": { "id": 29, "name_long": "Illinois", "name": "Ill." }, "cites_to": [ { "cite": "418 N.E.2d 776", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1981, "pin_cites": [ { "page": "780", "parenthetical": "opposite" } ], "opinion_index": 0 }, { "cite": "94 Ill. App. 3d 211", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3129374 ], "year": 1981, "pin_cites": [ { "page": "215", "parenthetical": "opposite" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/94/0211-01" ] }, { "cite": "433 N.E.2d 1132", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1982, "pin_cites": [ { "page": "1134", "parenthetical": "federal court dismissal for failure to prosecute must be given res judicata effect in subsequent action in Illinois state courts" } ], "opinion_index": 0 }, { "cite": "105 Ill. App. 3d 28", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 5468627 ], "year": 1982, "pin_cites": [ { "page": "30", "parenthetical": "federal court dismissal for failure to prosecute must be given res judicata effect in subsequent action in Illinois state courts" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/105/0028-01" ] }, { "cite": "463 N.E.2d 762", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1984, "pin_cites": [ { "page": "765" } ], "opinion_index": 0 }, { "cite": "123 Ill. App. 3d 699", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 5678440 ], "year": 1984, "pin_cites": [ { "page": "702-03" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/123/0699-01" ] }, { "cite": "989 F.2d 929", "category": "reporters:federal", "reporter": "F.2d", "case_ids": [ 12257834, 10516147 ], "year": 1993, "pin_cites": [ { "page": "934" } ], "opinion_index": 0, "case_paths": [ "/br/152/0929-01", "/f2d/989/0929-01" ] }, { "cite": "56 F.3d 343", "category": "reporters:federal", "reporter": "F.3d", "case_ids": [ 11325245 ], "weight": 2, "year": 1995, "pin_cites": [ { "page": "346", "parenthetical": "dismissal of suit after sale of property does not bar an action by the nonparty purchaser" }, { "page": "347" } ], "opinion_index": 0, "case_paths": [ "/f3d/56/0343-01" ] }, { "cite": "650 N.E.2d 294", "category": "reporters:state_regional", "reporter": "N.E.2d", "weight": 2, "year": 1995, "pin_cites": [ { "page": "296", "parenthetical": "no privity between Illinois Department of Public Aid and custodial mother in action for past-due child support" }, { "page": "296" } ], "opinion_index": 0 }, { "cite": "272 Ill. App. 3d 73", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 252314 ], "weight": 2, "year": 1995, "pin_cites": [ { "page": "76", "parenthetical": "no privity between Illinois Department of Public Aid and custodial mother in action for past-due child support" }, { "page": "76" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/272/0073-01" ] }, { "cite": "424 N.E.2d 981", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1981, "pin_cites": [ { "parenthetical": "judgment in 1974 zoning case binding on 1979 purchaser of property" } ], "opinion_index": 0 }, { "cite": "98 Ill. App. 3d 884", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 8500063 ], "year": 1981, "pin_cites": [ { "parenthetical": "judgment in 1974 zoning case binding on 1979 purchaser of property" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/98/0884-01" ] }, { "cite": "17 N.E.2d 963", "category": "reporters:state_regional", "reporter": "N.E.2d", "weight": 2, "year": 1938, "pin_cites": [ { "page": "967" }, { "page": "967" } ], "opinion_index": 0 }, { "cite": "370 Ill. 92", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 2561854 ], "weight": 2, "year": 1938, "pin_cites": [ { "page": "100" }, { "page": "100" } ], "opinion_index": 0, "case_paths": [ "/ill/370/0092-01" ] }, { "cite": "804 F.2d 390", "category": "reporters:federal", "reporter": "F.2d", "case_ids": [ 1662651 ], "year": 1986, "pin_cites": [ { "page": "393" } ], "opinion_index": 0, "case_paths": [ "/f2d/804/0390-01" ] }, { "cite": "832 F.2d 1021", "category": "reporters:federal", "reporter": "F.2d", "case_ids": [ 10549546 ], "year": 1987, "pin_cites": [ { "page": "1025" } ], "opinion_index": 0, "case_paths": [ "/f2d/832/1021-01" ] }, { "cite": "626 N.E.2d 225", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1993, "pin_cites": [ { "page": "228" } ], "opinion_index": 0 }, { "cite": "157 Ill. 2d 484", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 778589 ], "year": 1993, "pin_cites": [ { "page": "491" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/157/0484-01" ] }, { "cite": "49 F.3d 337", "category": "reporters:federal", "reporter": "F.3d", "case_ids": [ 7415459 ], "year": 1995, "pin_cites": [ { "page": "338" } ], "opinion_index": 0, "case_paths": [ "/f3d/49/0337-01" ] }, { "cite": "602 N.E.2d 820", "category": "reporters:state_regional", "reporter": "N.E.2d", "weight": 2, "year": 1992, "pin_cites": [ { "page": "825" }, { "page": "825" } ], "opinion_index": 0 }, { "cite": "151 Ill. 2d 285", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 3292030 ], "weight": 2, "year": 1992, "pin_cites": [ { "page": "294" }, { "page": "296" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/151/0285-01" ] } ], "analysis": { "cardinality": 846, "char_count": 16559, "ocr_confidence": 0.777, "pagerank": { "raw": 1.952284705362409e-07, "percentile": 0.7368881351769929 }, "sha256": "63801e1ed63744a50f12b0ff18c0d0bb7a3305c135c7e85750c9acbf111d4df1", "simhash": "1:0f2b59531e309da9", "word_count": 2802 }, "last_updated": "2023-07-14T20:24:46.991294+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "DIVERSIFIED FINANCIAL SYSTEMS, INC., Plaintiff-Appellant, v. NANCY BOYD et al., Defendants-Appellees." ], "opinions": [ { "text": "JUSTICE COOK\ndelivered the opinion of the court:\nDiversified Financial Systems (DFS) filed this mortgage foreclosure suit in March 1994. Seventeen of the eighteen defendants (all but Magna Bank) moved for summary judgment on the grounds they had been absolved of indebtedness on the underlying notes in a federal lawsuit involving DFS\u2019 predecessor in interest. Accordingly, they argued, this suit was barred as res judicata. The trial court granted the motion. DFS appeals. We reverse and remand.\nThe case on which defendants base their res judicata defense is Jackson v. First National Bank (Nos. 88\u20142273, 88\u20142275, 88\u20142276, 88\u20142290) (Jackson), filed in the United States District Court for the Central District of Illinois, Danville. The record before us does not indicate the nature of the complaint in Jackson, but it is uncontroverted that the Federal Deposit Insurance Corporation (FDIC) was a defendant. In May 1989 FDIC filed a counterclaim for the amount owed on certain promissory notes. All but one of the defendants in this case were counterdefendants in Jackson (the exception is Magna Bank), and the notes on which FDIC counterclaimed were those underlying the mortgage which DFS is now attempting to foreclose. In November 1993, while Jackson was still pending, FDIC \"bulk sold\u201d the notes to DFS.\nAfter learning of the sale in December 1993, counsel for FDIC filed a motion to withdraw from Jackson on the grounds that FDIC had no remaining interest in the case. On January 13, 1994, it served that motion on opposing counsel and the president of DFS by mail. The motion indicated there were no other motions pending and a trial date had not been set. It \"advised\u201d DFS to retain separate counsel and file an appearance in federal court, and stated there would be a hearing on its motion to withdraw on January 19, six days later.\nOn January 17, two days before the scheduled hearing, several counterdefendants filed a motion to dismiss FDIC\u2019s counterclaim pursuant to Rule 12(b) of the Federal Rules of Civil Procedure (Fed. R. Civ. P. 12(b)), because FDIC \"no longer ha[d] an interest in the subject matter of the instant litigation.\u201d Although the motion averred FDIC had sold the notes to DFS, DFS was not served with the motion. On January 20, the federal court granted both motions, dismissing the counterclaim \"with prejudice for lack of a plaintiff and for lack of prosecution under Federal Rules of Civil Procedure 16(f), 41(b), and 37(b) [(Fed. Rules Civ. P. 16(f), 41(b), 37(b))].\u201d The court\u2019s order indicates only plaintiffs and counterdefendants (not counterplaintiff FDIC and not DFS) appeared at the January 19 hearing.\nANALYSIS\nThe elements of res judicata are the same under federal and Illinois law: (1) a final judgment on the merits rendered by a court of competent jurisdiction; (2) identity of cause of action; and (3) identity of parties or their privies. People ex rel. Burris v. Progressive Land Developers, Inc., 151 Ill. 2d 285, 294, 602 N.E.2d 820, 825 (1992); Brzostowski v. Laidlaw Waste Systems, Inc., 49 F.3d 337, 338 (7th Cir. 1995). The burden of proof is on the party invoking the doctrine. Torcasso v. Standard Outdoor Sales, Inc., 157 Ill. 2d 484, 491, 626 N.E.2d 225, 228 (1993); Appley v. West, 832 F.2d 1021, 1025 (7th Cir. 1987), citing Gildorn Savings Ass\u2019n v. Commerce Savings Ass\u2019n, 804 F.2d 390, 393 (7th Cir. 1986). The dispute in this case concerns the first and third requirements.\nDefendants also make the threshold argument that DFS should be barred from any complaint about the judgment because it did not pursue any remedies in the federal system. Said another way, defendants\u2019 argument is that even if DFS was not a party or privy to the federal case, and is accordingly not bound under principles of res judicata, DFS is nevertheless somehow bound by the federal judgment. Defendants argue DFS should have entered the federal case and sought to overturn the judgment that had been entered. We reject that argument. If DFS was not bound under principles of res judicata, DFS was not required to enter the federal case.\nI. FDIC WAS NOT DFS\u2019 REPRESENTATIVE IN THE FEDERAL CASE\nDefendants argue that successors to interests in property are in privity with their transferors, quoting the following language from Schafer v. Robillard, 370 Ill. 92, 100, 17 N.E.2d 963, 967 (1938):\n\"[I]t is only parties and their privies, in blood or estate, that are estopped by a decree or judgment. Parties to a decree, in the eye of the law, are those, only, who are named as such in the record, and are properly served with process or enter their appearance. A privy in blood or estate is one who derives title to the property in question by descent or purchase. A privy to a judgment or decree is one whose succession to the rights of property thereby affected occurred after the institution of the particular suit, and from a party thereto.\u201d\nSchafer made a distinction between a \"privy in blood or estate\u201d and a \"privy to a judgment or decree.\u201d T)he reference to a \"privy in blood or estate\u201d does no more than set but the familiar rule that a transferee of property can acquire no title greater than that possessed by its transferor. If FDIC had accepted payments on these notes, or compromised the notes, and then transferred the notes to DFS, DFS would be bound to recognize those payments or compromises. Judgments of execution or injunction affecting the notes would be much the same. A judgment that determines interests in real or personal property is in effect a conveyance from the losing party to the winning party. See Restatement (Second) of Judgments \u00a7 43, Comment a, at 2 (1982); Varley v. Pickens, 98 Ill. App. 3d 884, 424 N.E.2d 981 (1981) (judgment in 1974 zoning case binding on 1979 purchaser of property). However, once the transfer is made, the actions of the transferor no longer bind the transferee. Where the transferor becomes a party to an action concerning property, after it has been transferred, his becoming a party \"does not make him in any sense a representative of his successor in estate.\u201d Restatement (Second) of Judgments \u00a7 44, Comment f, at 12 (1982).\nPrivity is said to exist between parties who adequately represent the same legal interests. In re Marriage of Mesecher, 272 Ill. App. 3d 73, 76, 650 N.E.2d 294, 296 (1995) (no privity between Illinois Department of Public Aid and custodial mother in action for past-due child support). The word \"privity\u201d is not a precise one, and it is no longer used by the Restatement. The Restatement asks instead whether the nonparty controls the presentation of the case (Restatement (Second) of Judgments \u00a7 39 (1982)) or agrees to be bound by the determination (Restatement (Second) of Judgments \u00a7 40 (1982)) or whether the nonparty is represented by a party (Restatement (Second) of Judgments \u00a7 41 (1982)). Representatives under the Restatement are restricted to five specific categories: trustees, persons authorized by the nonparty, executors, authorized public officials, and class representatives designated by a court. Restatement (Second) of Judgments \u00a7 41(1) (1982).\nIt is difficult to view FDIC as the representative of DFS under the general rule. FDIC was simply the predecessor to DFS, and when DFS acquired the notes, FDIC\u2019s interest in them came to an end. Perhaps if FDIC had only sold an interest in the notes, and continued to own a partial interest, DFS and FDIC might have agreed that FDIC would handle the litigation. The mere fact of co-ownership, however, does not make co-owners representatives of each other. \"Indeed, the very relationship of co-ownership is a source of continuing potential conflict among them.\u201d Restatement (Second) of Judgments \u00a7 54, Comment a, at 66 (1982).\nThe policy concern here is to avoid a situation where everyone engages in litigation with the expectation that the matter will be finally resolved, but then when the judgment is entered, the loser argues that he is not bound by it, or his opponent is not entitled to its benefits, because he or the opponent was not a party or privy. \"[T]he party opposing the representative is entitled to assume that the representative participates in a way that will bind those whom he represents unless the circumstances warn the opposing party that there is doubt about the matter.\u201d Restatement (Second) of Judgments \u00a7 42, Comment a, at 406 (1982). The question is whether there was justifiable reliance on the part of the opposing party.\nThere is a special rule where property is transferred to a successor while litigation is pending. In the words of Schafer, \"one whose succession to the rights of property thereby affected occurred after the institution of the particular suit, and from a party thereto\u201d is \"[a] privy to a judgment or decree.\u201d Schafer, 370 Ill. at 100, 17 N.E.2d at 967. Of course, if the successor is aware of the litigation and joins in it, he is bound as a party. If the successor is aware of the litigation but does not join, \"he acquiesces in the transferor\u2019s continuing, for purposes of the litigation, to be the apparent owner of the interest in the property.\u201d Restatement (Second) of Judgments \u00a7 44, Comment a, at 10-11 (1982). Where the successor is not aware of the pending action, and the opposing party is not aware of the transfer, the equities still warrant placing the burden on the successor. There is a different result, however, \"if the opposing party knows of the transfer and is aware also that the successor does not know of the pending action.\u201d Restatement (Second) of Judgments \u00a7 44, Comment d, at 11-12 (1982). In that circumstance, the opposing party has no just reason to rely on the fact that the transferor is still the nominal party to the action, and if the opposing party fails to notify the successor of the action, he may not avail himself of the benefit of the judgment. Restatement (Second) of Judgments \u00a7 44, Comment d, at 12 (1982).\nThe successor\u2019s knowledge must come at a meaningful time, when the successor has the opportunity to act on that knowledge. In the present case DFS had no knowledge the action remained pending. DFS\u2019 only knowledge was that FDIC had no interest in the case and that FDIC\u2019s attorneys were withdrawing. There is no indication DFS expected the case to continue without its participation. Neither DFS nor FDIC nor FDIC\u2019s attorneys did anything that could have misled the debtors in this case.\nThe responsibility of the opposing party to take notice of changes in ownership is even stronger where the property consists of an obligation that is capable of assignment. It is anticipated that such obligations will be transferred, and the law requires obligors to be alert for such occurrences.\n\"If the action is brought by one who lacks authority to discharge the obligation (for example, an assignor after notice of assignment), it is the obligor\u2019s responsibility to raise that issue; if he fails to do so, the judgment does not discharge him, just as he would not be discharged by making a voluntary payment to the assignor after notice. If the obligor is in doubt as to whom the obligation is owed, he may use interpleader or a comparable remedy.\u201d Restatement (Second) of Judgments \u00a7 55, Comment a, at 69 (1982).\nIn the present case FDIC assigned the notes and mortgages to DFS, and the debtors had notice of that fact. Even if the debtors were not given formal notice, so long as they were \"aware of the events occurring after commencement of the action,\u201d they may be denied the right to claim discharge through the judgment. Restatement (Second) of Judgments \u00a7 55, Comment b, at 70 (1982).\n\"[T]he requisite privity must be found in the substantial identity of the incentives of the earlier party with those of the party against whom res judicata is asserted.\u201d Chase Manhattan Bank, N.A. v. Celotex Corp., 56 F.3d 343, 346 (2d Cir. 1995) (dismissal of suit after sale of property does not bar an action by the nonparty purchaser). Once FDIC sold the notes to DFS it had no incentive to pursue its counterclaim, and DFS is therefore \"not precluded by [FDIC\u2019s] abandonment of its litigation.\u201d Chase Manhattan, 56 F.3d at 347.\nII. FDIC WAS DIVESTED OF AUTHORITY AND DID NOT REPRESENT DFS\u2019 INTERESTS ADEQUATELY\nEven if we assume that FDIC was the representative of DFS in the bankruptcy action, there are exceptions to the rule that a nonparty will be bound if he is represented in an action. One exception exists where the representative is divested of authority before the rendition of the judgment. Restatement (Second) of Judgments \u00a7 42(1)(c) (1982). Such divestment occurred in this case once FDIC no longer had an interest in the litigation and its attorneys were allowed to withdraw.\nPerhaps FDIC\u2019s attorneys should have attended the hearing where the district judge acted on their motion to withdraw. Although tactical mistakes or negligence on the part of the representative are not as such sufficient to render the judgment vulnerable, \"[w]here the representative\u2019s management of the litigation is so grossly deficient as to be apparent to the opposing party, it likewise creates no justifiable reliance interest in the adjudication on the part of the opposing party.\u201d Restatement (Second) of Judgments \u00a7 42, Comment f, at 411 (1982); see also Restatement (Second) of Judgments \u00a7 42(1)(e) (1982). Even assuming FDIC at one point represented DFS in the bankruptcy action, the circumstances were such in this case that the debtors were warned that there were doubts about the representation.\nA nonparty is subject to res judicata effects of a suit only if its interests were adequately represented. In re L&S Industries, Inc., 989 F.2d 929, 934 (7th Cir. 1993); Mesecher, 272 Ill. App. 3d at 76, 650 N.E.2d at 296, citing Progressive Land Developers, 151 Ill. 2d at 296, 602 N.E.2d at 825. A party will not be bound if its representative \"fail[s] to prosecute or defend the action with due diligence and reasonable prudence and the opposing party was on notice of facts making that failure apparent.\u201d Restatement (Second) of Judgments \u00a7 75(2), at 209 (1982). Both conditions for denying application of res judicata are clearly satisfied in this case.\nAs soon as FDIC\u2019s counsel learned of the sale it moved to withdraw, on the grounds that FDIC no longer had any interest in the case. The debtors were aware of this motion and were aware that the notes had been sold to DFS. They moved to dismiss FDIC\u2019s counterclaim without notifying DFS, knowing that the earlier motion to withdraw stated there were no other motions pending. FDIC not only failed to respond to the motion to dismiss, it did not show up at the hearing thereon. FDIC did not challenge the dismissal nor does it appear it bothered to notify DFS thereof. FDIC did nothing to protect DFS\u2019 interests with the possible exception of advising it to retain counsel and appear. Assuming FDIC was DFS\u2019 representative, its representation was so obviously inadequate that DFS cannot be bound by the judgment.\nIII. WAS THE FEDERAL COURT\u2019S DISMISSAL A FINAL JUDGMENT ON THE MERITS?\nBecause of our resolution of the foregoing issues, we need not address the question whether an involuntary dismissal in a federal case which would be considered a judgment on the merits by the federal courts, but not by Illinois courts because of Supreme Court Rule 273 (134 Ill. 2d R. 273), may be refiled in an Illinois court. Compare Blaszczak v. City of Palos Hills, 123 Ill. App. 3d 699, 702-03, 463 N.E.2d 762, 765 (1984), and Martin-Trigona v. Gouletas, 105 Ill. App. 3d 28, 30, 433 N.E.2d 1132, 1134 (1982) (federal court dismissal for failure to prosecute must be given res judicata effect in subsequent action in Illinois state courts), with Aronson v. North Park College, 94 Ill. App. 3d 211, 215, 418 N.E.2d 776, 780 (1981) (opposite).\nIV. CONCLUSION\nFor the reasons stated, we reverse the decision of the circuit court of Macon County dismissing DFS\u2019 complaint and remand for further proceedings consistent with this opinion.\nReversed and remanded.\nSTEIGMANN, P.J., and GARMAN, J., concur.", "type": "majority", "author": "JUSTICE COOK" } ], "attorneys": [ "James W. Johnson and David K. Cox (argued), both of Johnson, Stricklin & Waller, of Decatur, for appellant.", "H. Kent Heller and David Stevens (argued), both of Heller, Holmes & Associates, P.C., of Mattoon, for appellees Jill Phillips and Tom Phillips.", "Gary Edward Orr (argued), of Orr, Dvorak & Associates, Ltd., of East Peoria, for other appellees." ], "corrections": "", "head_matter": "DIVERSIFIED FINANCIAL SYSTEMS, INC., Plaintiff-Appellant, v. NANCY BOYD et al., Defendants-Appellees.\nFourth District\nNo. 4\u201496\u20140218\nOpinion filed February 25, 1997.\nJames W. Johnson and David K. Cox (argued), both of Johnson, Stricklin & Waller, of Decatur, for appellant.\nH. Kent Heller and David Stevens (argued), both of Heller, Holmes & Associates, P.C., of Mattoon, for appellees Jill Phillips and Tom Phillips.\nGary Edward Orr (argued), of Orr, Dvorak & Associates, Ltd., of East Peoria, for other appellees." }, "file_name": "0911-01", "first_page_order": 929, "last_page_order": 937 }