GRIGGERS et al v. SHOPF
Filing
84
ORDER - This case involves the sale of Plaintiff Larry Griggers' ownership interests in several Ruth's Chris restaurants to co-Plaintiff RC Management Holdings, LLC ("RC Management"). After Mr. Griggers and RC Management provide d Defendant Judith Shopf an opportunity to exercise her rights of first refusal, they brought this suit for declaratory judgment. [Filing No. 12 .] Presently pending before the Court is Ms. Shopf's Motion to Dismiss, in which she alleges th at this Court lacks subject matter jurisdiction over this matter. [Filing No. 63 .] Ms. Shopf's Motion is fully briefed1 and is now ripe for the Court's review. For the reasons detailed herein, the Court GRANTS Plaintiffs' Motion t o Substitute Party Defendant, 83 , and GRANTS Ms. Shopf's Motion to Dismiss, 63 . Plaintiffs' request for declaratory judgment is, therefore, DISMISSED WITHOUT PREJUDICE. Final Judgment shall issue accordingly. (SEE ORDER). Signed by Judge Jane Magnus-Stinson on 11/13/2018. (APD)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
LARRY GRIGGERS,
RC MANAGEMENT HOLDINGS, LLC,
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Plaintiffs,
v.
JUDITH A. SHOPF,
Defendant.
No. 1:17-cv-03410-JMS-DML
ORDER
This case involves the sale of Plaintiff Larry Griggers’ ownership interests in several
Ruth’s Chris restaurants to co-Plaintiff RC Management Holdings, LLC (“RC Management”).
After Mr. Griggers and RC Management provided Defendant Judith Shopf an opportunity to
exercise her rights of first refusal, they brought this suit for declaratory judgment. [Filing No. 12.]
Presently pending before the Court is Ms. Shopf’s Motion to Dismiss, in which she alleges that
this Court lacks subject matter jurisdiction over this matter. [Filing No. 63.] Ms. Shopf’s Motion
is fully briefed1 and is now ripe for the Court’s review.
After filing her Motion to Dismiss, Ms. Shopf died in August 2018. Plaintiffs now seek an
order substituting her heirs as defendants in this matter. As such, the Court will also consider
Plaintiffs’ Motion to Substitute Party Defendant. [Filing No. 83.]
1
For the second time during the pendency of this case, Ms. Shopf filed two identical briefs in
support of her Motion. [Filing No. 63-1; Filing No. 64.] Consistent with Local Rule 7-1, the Court
will consider the Brief that was filed separately – Filing No. 64 – as the operative brief in support
of Ms. Shopf’s Motion to Dismiss. Counsel should take care not to file repetitive documents in
the future, and to comply with local rules.
1
For the reasons stated herein, the Court GRANTS both Plaintiffs’ Motion to Substitute
Party Defendant and Ms. Shopf’s Motion to Dismiss.
I.
APPLICABLE LEGAL STANDARD
Federal Rule of Civil Procedure 12(b)(1) “allows a party to move to dismiss a claim for
lack of subject matter jurisdiction.” Hallinan v. Fraternal Order of Police of Chicago Lodge No.
7, 570 F.3d 811, 820 (7th Cir. 2009). Jurisdiction is the “power to decide,” and federal courts may
only decide claims that fall within both a statutory grant of authority and the Constitution’s limits
on the judiciary. In re Chicago, R.I. & P.R. Co., 794 F.2d 1182, 1188 (7th Cir. 1986). The burden
is on the party bringing the claim to demonstrate that subject matter jurisdiction exists. See Lee v.
City of Chicago, 330 F.3d 456, 468 (7th Cir. 2003).
“Motions to dismiss under 12(b)(1) are meant to test the sufficiency of the complaint, not
to decide the merits of the case.” Ctr. for Dermatology & Skin Cancer, Ltd. v. Burwell, 770 F.3d
586, 588 (7th Cir. 2014). “In the context of a motion to dismiss for lack of subject matter
jurisdiction, we accept as true the well pleaded factual allegations, drawing all reasonable
inferences in favor of the plaintiff.” Iddir v. INS, 301 F.3d 492, 496 (7th Cir. 2002). In considering
such a motion, “[t]he district court may properly look beyond the jurisdictional allegations of the
complaint and view whatever evidence has been submitted on the issue to determine whether in
fact subject matter jurisdiction exists.” St. John’s United Church of Christ v. City of Chicago, 502
F.3d 616, 625 (7th Cir. 2007) (citations omitted).
II.
BACKGROUND
Ms. Shopf’s Motion comes before this Court seven months after the Court denied her
previous Motion to Dismiss pursuant to Rules 12(b)(2) and 12(b)(6) in March 2018. [Filing No.
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46.] In that Order, [Filing No. 46], the Court set forth the allegations contained in Plaintiffs’
Amended Complaint, [Filing No. 10], and those allegations remain unchanged. As such, the Court
incorporates by reference the background of its March 2018 Order, [Filing No. 46 at 4-9], and
presents the following abbreviated summary of the facts.
Since 1994, Larry Griggers has been Chairman and CEO of various Ruth’s Chris entities
in Indiana and Missouri, (collectively, “the Ruth’s Chris entities”). [Filing No. 10 at 2.] Mr.
Griggers’ transfer of ownership and management of the Ruth’s Chris entities was subject to a right
of first refusal by other shareholders and unitholders of the Ruth’s Chris entities. [Filing No. 10
at 3.]
Judith Shopf, the widow of Mr. Griggers’ former business partner, is a successor in interest
to her late husband’s ownership interest in the Ruth’s Chris entities. [Filing No. 10 at 2-3.]
In August 2017, after a member of RC Management made an offer to purchase Mr.
Griggers’ ownership interests in the Ruth’s Chris entities, Ms. Shopf was provided with notice of
the proposed transfer, along with the rest of the shareholders and eligible unitholders of each entity.
[Filing No. 10 at 3-5.] In a letter dated September 11, 2017, Ms. Shopf’s attorney challenged the
transfer, arguing that a “bundled” sale was not permissible, the purchase price was unreasonably
high, and the transaction violated the Ruth’s Chris entities’ governing documents. [Filing No. 10
at 7.] In response, Mr. Griggers extended the time for Ms. Shopf to exercise a right of first refusal.
[Filing No. 10 at 7.]
Notwithstanding Ms. Shopf’s dispute concerning the proposed transaction, Mr. Griggers
and RC Management closed on the transaction and signed an agreement (the “Provisional
Agreement”) to honor Ms. Shopf’s right of first refusal through October 13, 2017. [Filing No. 10
at 9; Filing No. 10-5 at 1-3.]
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On October 6, 2017, Mr. Griggers and RC Management filed suit in this Court against Ms.
Shopf, requesting declaratory judgment on seven grounds relating to the transaction and Ms.
Shopf’s rights. [Filing No. 10 at 10-11.]
One week later, Ms. Shopf filed suit in Louisiana state court (the “Louisiana Suit”) against
Mr. Griggers, RC Management, and several others seeking a preliminary injunction and temporary
restraining order prohibiting the proposed transfer. [Filing No. 17-1 at 7.] The Louisiana Suit was
removed to the United States District Court for the Eastern District of Louisiana and was dismissed
without prejudice. See Shopf v. Griggers, No. 2:17-cv-10958 (E.D. La. Oct. 20, 2017), ECF No.
1; EFC No. 27; EFC No. 45.
On July 9, 2018, Ms. Shopf filed the instant Motion to Dismiss for lack of subject matter
jurisdiction. [Filing No. 63.] On August 9, 2018, counsel informed the Court that Ms. Shopf had
died on August 4, 2018. [Filing No. 75.] On November 2, 2018, Plaintiffs filed a Motion to
Substitute Party Defendant, seeking an order substituting Leslie Shopf and William Helfand, in
their capacities as the duly appointed personal representatives of Ms. Shopf’s estate. [Filing No.
83.]
III.
DISCUSSION
1. Plaintiffs’ Motion to Substitute Party Defendant [Filing No. 83]
The Court first turns to Plaintiffs’ Motion to Substitute Party Defendant, in which they
argue that Ms. Shopf’s heirs should be substituted as defendants in this matter. [Filing No. 83.]
Plaintiffs argue that “in accordance with [Ms.] Shopf’s will, Leslie Shopf and William Helfand
were appointed and confirmed the Independent Testamentary Co-Executors of the Succession of
Judith Anderson Shopf.” [Filing No. 83]. In support of their Motion, Plaintiffs include a document
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from the Twenty-Second Judicial District Court for the Parish of St. Tammany in Louisiana
naming Leslie Shopf and William Helfand as co-executors of Ms. Shopf’s will. [Filing No. 83-1.]
Rule 25(a)(1) of the Federal Rules of Civil Procedure provide that if “a party dies and the
claim is not extinguished, the court may order substitution of the proper party,” and that a motion
for substitution “may be made by any party . . . within 90 days after service of a statement noting
the death.” Fed. R. Civ. P. 25(a)(1). “[T]he proper party for substitution is the person who has
the legal right and authority to defend against the claims brought against the deceased party and
Rule 25(a) recognizes that the proper party usually will be the representative of the decedent’s
estate who has been appointed under state law.” Hicks v. Young, No. 10 C 3874, 2012 WL
1755735, at *1 (N.D. Ill. May 15, 2012) (citation and quotations omitted).
Although the timeline for Ms. Shopf to file a response has not yet lapsed, the Court
may rule upon a routine or uncontested motion before the response deadline passes” pursuant to
Local Rule 7-1(d) unless the motion indicates that an opposing party objects to it or the court
otherwise believes that a response will be filed. In this case, the Court finds Plaintiffs’ Motion is
sufficiently routine that a decision at this time is permitted under the Local Rules. In addition, the
Court finds that Leslie Shopf and William Helfand, in their capacities as personal representatives
of the Estate of Ms. Shopf, are proper parties for substitution under Rule 25(a)(1). Accordingly,
Plaintiffs’ Motion to Substitute Party Defendant is GRANTED.
All subsequent references to Ms. Shopf should be read to refer to the substituted parties.
In the interests of clarity, however, given that Ms. Shopf filed the pending Motion to Dismiss prior
to her death, the Court will continue to refer to arguments proffered by her attorneys as having
been made by her.
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2. Ms. Shopf’s Motion to Dismiss [Filing No. 63]
The Court next turns to Ms. Shopf’s Motion to Dismiss, in which she argues that this Court
lacks subject matter jurisdiction because “there is no longer a legal basis” to “declare any rights
under the governing documents or applicable law” because her rights of first refusal have expired.
[Filing No. 64 at 2.] Ms. Shopf argues that this case “does not involve a bona fide necessity” for
Plaintiffs to carry on their business because the sale of the stock from Mr. Griggers to RC
Management has already closed, so Plaintiffs “have already undertaken their desired course of
conduct that is the subject of their suit.” [Filing No. 64 at 6.] She admits that her rights of first
refusal have now expired and states that she “chose not to continue fighting over potential
problems related to [P]laintiffs’ sale between themselves and therefore neither appealed that
dismissal nor re-filed her claims in any court.” [Filing No. 64 at 2.] Ms. Shopf argues that
Plaintiffs “are not waiting for this court to declare any rights or duties before seizing a business
opportunity.” [Filing No. 64 at 6.] As such, she contends that “any judgment in this case would
be merely an (improper) advisory opinion.” [Filing No. 64 at 7.]
In response, Plaintiffs argue that there “is no reason for the Court to retreat from its March
2018 conclusion that a case or controversy exists between the parties.” [Filing No. 79 at 6.]
Plaintiffs characterize Ms. Shopf’s Motion as attacking “the Court’s subject matter jurisdiction on
the grounds that no case or controversy among the parties exists, principally because she never
filed counterclaims in this action,” and state that she “hangs her hat on the fact that her Louisiana
district court case has been dismissed and she has not filed a counterclaim in this case.” [Filing
No. 79 at 4; Filing No. 79 at 12.] Plaintiffs argue that Ms. Shopf “cannot seriously contend that
no controversy exists” when her answer to the Complaint “preserves the same disputes that she:
(a) threatened in pre-suit communications, (b) pursued (inappropriately) to obtain a temporary
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restraining order without notice in Louisiana state court, (c) pursued in Louisiana federal court;
(d) advanced in Louisiana through a motion to reconsider even after her case was dismissed; and
(e) has argued in her pleadings and court submissions in this Indiana case.” [Filing No. 79 at 8.]
Plaintiffs contend that Ms. Shopf “cannot unring the bell that she is willing to pursue a claim
related to the sale of shares/units of the” Ruth’s Chris entities, “particularly when her conduct,
history, and operative pleadings still demonstrate an actual controversy.” [Filing No. 79 at 10.]
Plaintiffs contend that dismissing their complaint on mootness grounds would force them “to ‘wait
and see’ if [Ms.] Shopf makes good on her threats to file a lawsuit (again) in which she may
resurrect her previously-pleaded claims that Plaintiffs breached their fiduciary duties and
contracts.” [Filing No. 79 at 12.]
In her reply brief, Ms. Shopf argues that this case is distinguishable from those in which
the Declaratory Judgment Act is properly invoked because (1) Plaintiffs in this case “did not refrain
from exercising what they believed to be their rights under the shareholder/unitholder agreements
at issue because of a fear or risk of a lawsuit,” (2) they “are not incurring some loss or damage
while waiting for [Ms.] Shopf (or some other shareholder/unitholder) to decide whether to file
suit,” and (3) “the statute of limitations is already running for any claim that [Ms.] Shopf or any
shareholder or unitholder might have.” [Filing No. 82 at 4-5.] Therefore, Ms. Shopf argues that
there “is no purpose served by, and no bona fide business necessity for, a declaration.” [Filing No.
82 at 5.] In addition, Ms. Shopf argues that Plaintiffs have not added the other shareholders to the
case and, without them, no certainty can be gained. [Filing No. 82 at 5.] In addition, Ms. Shopf
contends that under Plaintiffs’ theory, “the only decision this Court could render that would
eliminate this ‘uncertainty’ is a declaration of no breach of fiduciary duty and no breach of
7
contract,” – in other words, the “outcome the Plaintiffs seek and desire is not a declaration of rights
or status, but rather a finding on liability or non-liability.” [Filing No. 82 at 6-8.]
“Under Article III, § 2 of the United States Constitution, federal court jurisdiction is limited
to ‘actual, ongoing controversies.’” St. John’s, 502 F.3d at 626 (quoting Honig v. Doe, 484 U.S.
305, 317 (1988)). “In the absence of a live controversy,” a court order would be “no more than an
advisory opinion,” which, “federal courts are without constitutional authority to issue.” Id. at 627.
Even where a case or controversy originally existed, mootness can “strip[] a federal court
of subject-matter jurisdiction.” Chicago Joe’s Tea Room, LLC v. Vill. of Broadview, 894 F.3d
807, 815 (7th Cir. 2018) (citations omitted). “A case becomes moot when the dispute between the
parties no longer rages, or when one of the parties loses his [or her] personal interest in the outcome
of the suit.” Thomas v. Law Firm of Simpson & Cybak, 244 F. App’x 741, 743 (7th Cir. 2007)
(citing Holstein v. City of Chicago, 29 F.3d 1145, 1147 (7th Cir. 1994)). In other words, “[i]f ‘an
event occurs while a case is pending . . . that makes it impossible for the court to grant “any
effectual relief whatever” to a prevailing party, the [case] must be dismissed.’” Chicago Joe’s 894
F.3d at 815 (quoting Cornucopia Institute v. USDA, 560 F.3d 673, 676 (7th Cir. 2009); Church of
Scientology of California v. United States, 506 U.S. 9, 12 (1992)).
This case has the added complexity of being a suit for declaratory relief in which Plaintiffs
seek seven declarations regarding (1) the sale transaction between Plaintiffs and (2) Ms. Shopf’s
rights vis-à-vis the sale transaction. [Filing No. 10 at 10-11 (setting forth the seven subparts upon
which Plaintiffs seek a declaratory judgment).] Therefore, the Court must look to jurisdictional
principles in the declaratory judgment context.
The Declaratory Judgment Act itself provides that, “[i]n a case of actual controversy within
its jurisdiction . . . any court of the United States . . . may declare the rights and other legal relations
8
of any interested party seeking such declaration, whether or not further relief is or could be sought.”
MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 126 (2007) (quoting 28 U.S.C. § 2201(a)).
“This statute, however, does not dispense with the Article III case or controversy requirement . . .,
nor does it supply the court with subject matter jurisdiction.” Matter of VMS Sec. Litig., 103 F.3d
1317, 1327 (7th Cir. 1996) (citations omitted), overruled on other grounds by Envision Healthcare,
Inc. v. PreferredOne Ins. Co., 604 F.3d 983 (7th Cir. 2010); see also GNB Battery Techs., Inc. v.
Gould, Inc., 65 F.3d 615, 627 (7th Cir. 1995) (holding that the jurisdictional requirement of the
Declaratory Judgment Act “tracks the ‘cases’ or ‘controversies’ requirement of [A]rticle III”). The
distinction between “declaratory-judgment actions that satisfy the case-or-controversy
requirement and those that do not” is whether the dispute is “definite and concrete, touching the
legal relations of parties having adverse legal interests” and whether it is “real and substantial” as
distinguished “from an opinion advising what the law would be upon a hypothetical state of facts.”
MedImmune, 549 U.S. at 127 (citations and quotations omitted). This difference “is necessarily
one of degree, and it would be difficult if it would be possible, to fashion a precise test for
determining in every case whether there is such a controversy.” Golden v. Zwickler, 394 U.S. 103,
108 (1969) (noting that “the question in each case is whether the facts alleged, under all the
circumstances, show there is a substantial controversy between parties having adverse legal
interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment”).
An exception exists, wherein the party seeking declaratory relief demonstrates that there is an
“ongoing policy” that “is a continuing and brooding presence that casts a substantial adverse effect
on the interests of the petitioning parties,” but such an exception “rarely” applies. UWM Student
Ass’n v. Lovell, 888 F.3d 854, 861 (7th Cir. 2018) (citations and quotations omitted).
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Two developments have occurred since this Court considered Ms. Shopf’s first Motion to
Dismiss in March 2018, both of which impact this Court’s analysis of whether the issues in this
case are moot and support a conclusion that Ms. Shopf cannot bring a claim related to the sale
between Plaintiffs at this time.
First, Ms. Shopf did not appeal the decision of the U.S. District Court in Louisiana
dismissing her case without prejudice. She filed a Motion for Reconsideration, which the court in
Louisiana denied on March 23, 2018. Shopf v. Griggers, 2018 WL 1453214, at *3 (E.D. La. Mar.
23, 2018). Thereafter, Ms. Shopf had 30 days after the entry of judgment to file her notice of
appeal. See Federal Rule of Appellate Procedure for the 5th Circuit 4(a)(1)(A); see also Panda
Brandywine Corp. v. Potomac Elec. Power Co., 253 F.3d 865, 870 (5th Cir. 2001) (analyzing and
affirming a district court’s dismissal of an action without prejudice for lack of personal
jurisdiction). Therefore, at the time this Court issued its prior order regarding jurisdiction on
March 27, 2018, the timeline for Ms. Shopf to appeal the decision of the Louisiana court had not
yet lapsed and she still had approximately 26 days in which to file her notice of appeal. However,
Ms. Shopf did not appeal the decision of the Louisiana court.
A few weeks later on April 10, 2018, Ms. Shopf filed an answer to Plaintiffs’ Complaint
in this case in which she failed to raise a counterclaim. [Filing No. 49.] Rule 13(a) of the Federal
Rules of Civil Procedure provides that a pleading:
must state as a counterclaim any claim that – at the time of its service – the pleader
has against an opposing party if the claim: (A) arises out of the transaction or
occurrence that is the subject matter of the opposing party’s claim; and (B) does
not require adding another party over whom the court cannot acquire jurisdiction.
“Courts generally have agreed that the words ‘transaction or occurrence’ should be interpreted
liberally in order to . . . carry out the philosophy of Rule 13(a)” which is “to prevent multiplicity
of actions and to achieve resolution in a single lawsuit of all disputes arising out of common
10
matters.” Gilldorn Sav. Ass’n v. Commerce Sav. Ass’n, 804 F.2d 390, 396 (7th Cir. 1986) (quoting
Warshawsky & Co. v. Arcata Nat’l Corp., 552 F.2d 1257, 1261 (7th Cir. 1977)). Rule 13(a) “is in
some ways a harsh rule,” in that it “forces parties to raise certain claims at the time and place
chosen by their opponents, or to lose them.” Martino v. McDonald’s Sys., Inc., 598 F.2d 1079,
1082 (7th Cir. 1979). The failure to include compulsory counterclaims in a suit “means that they
are thereafter barred.” Ross ex rel. Ross v. Bd. of Educ. of Twp. High Sch. Dist. 211, 486 F.3d 279,
284 (7th Cir. 2007); see also Allan Block Corp. v. Cty. Materials Corp., 512 F.3d 912, 917 (7th
Cir. 2008) (“All Rule 13(a) does is command that certain claims be pleaded as counterclaims. It
does not specify the consequences of failing to do so. Those consequences are given by the doctrine
of res judicata, including its exceptions”). In short, as a result of her failure to plead a compulsory
counterclaim, Ms. Shopf would be subsequently barred from bringing an independent action on
this claim.
Plaintiffs contend that there “is no reason for the Court to retreat from its March 2018
conclusion that a case or controversy exists between the parties.” [Filing No. 79 at 6.] But
Plaintiffs’ argument ignores the events that have occurred in this case in the intervening months.
In March, when Ms. Shopf appeared poised to possibly assert her appeal rights in Louisiana and
had not yet filed her answer in this case, the Court was persuaded by Plaintiffs’ argument that there
was “uncertainty surrounding the legality of the transfer and how such uncertainty would affect
the Ruth’s Chris entities’ ongoing business, their employees, the Franchisor, and other investors.”
[Filing No. 50 at 19.] By contrast, Ms. Shopf’s decision not to appeal the decision in the Louisiana
Case and her decision not to assert a counterclaim in this case has significantly weakened the
argument that there is a sufficiently immediate and substantial controversy between the parties to
warrant the issuance of a declaratory judgment. Golden, 394 U.S. at 108. Whereas the dispute
11
between the parties was significantly more immediate and substantial in March 2018, the passage
of over seven months with no action by Ms. Shopf to pursue her claim, shows that “the dispute
between the parties no longer rages” as it once did. Thomas, 244 F. App’x at 743. Put simply,
Ms. Shopf’s failure to appeal the Louisiana Case or assert a counterclaim in this case supports a
conclusion that there is no case or controversy in this matter. And if there is no case or controversy,
then this Court must dismiss Plaintiffs’ claims for lack of jurisdiction.
It is true that the procedural nuances surrounding a compulsory counterclaim in this context
are complicated. “A suit dismissed for lack of jurisdiction cannot also be dismissed ‘with
prejudice’; that’s a disposition on the merits, which only a court with jurisdiction may render.”
Collier v. SP Plus Corp., 889 F.3d 894, 897 (7th Cir. 2018) (emphasis in original, quoting
Frederiksen v. City of Lockport, 384 F.3d 437, 438 (7th Cir. 2004)). Therefore, any dismissal by
this court would be without prejudice. However, this Circuit has typically held that “dismissal
without prejudice has, by definition, no preclusive effect” for the purposes of res judicata or
collateral estoppel. Lynk v. LaPorte Superior Court No. 2, 789 F.2d 554, 566 (7th Cir. 1986). This
would suggest that if this Court dismisses Plaintiffs’ claim for lack of jurisdiction, Ms. Shopf’s
failure to plead a counterclaim under Rule 13(a) would lack the necessary preclusive effect to bar
her from bringing her claim again – in effect, the right to assert her claim, which she currently
lacks, would be restored. Such a confounding outcome is antithetical to the spirit and intent of
Rule 13. See Martino, 598 F.2d at 1082 (stating that under Rule 13, the “convenience of the party
with a compulsory counterclaim is sacrificed in the interest of judicial economy” and that the filing
of the answer in a case marks “a point at which the judicial burden of the earlier lawsuit outweighs
the opposing party’s interest in bringing an action when and where it is most convenient”).
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Digging further into the nuances of Rule 13, however, reveals that a final judgment on the
merits is not always required to bar a claim that should have been pled as a compulsory
counterclaim. As an initial observation, the Court notes that collateral estoppel provides a “good
deal more latitude” on the requirement that there be a final judgment than does res judicata. Amcast
Indus. Corp. v. Detrex Corp., 45 F.3d 155, 158 (7th Cir. 1995); see also Wright & Miller, 6 Fed.
Prac. & Proc. Civ. § 1417 (3d ed.) (noting that when determining the effect of failing to plead a
counterclaim, “an analysis in terms of estoppel is a more flexible tool for handling cases resulting
in a default judgment, a consent judgment, or a dismissal after a settlement agreement”). Courts
outside of this Circuit have stated that the compulsory counterclaim rule is sometimes described
in terms “of res judicata and sometimes on a theory of waiver or estoppel.” Carnation Co. v. T.U.
Parks Const. Co., 816 F.2d 1099, 1103 (6th Cir. 1987). In 1988, the Seventh Circuit stated in dicta
in Hartford Acc. & Indem. Co. v. Sullivan that the “forfeiture of a claim that should have been but
was not raised as a compulsory counterclaim is based on principles of or akin to res judicata.” 846
F.2d 377, 382 (7th Cir. 1988). In a subsequent case, however, the Seventh Circuit clarified that
“if specific issues are resolved in the declaratory judgment action, their resolution will bind the
plaintiff by virtue of the doctrine of collateral estoppel should he later seek an injunction or
damages.” Allan, 512 F.3d at 916. Therefore, in this case, the effect of the compulsory
counterclaim rule would be based on estoppel rather than res judicata.
Further, several courts have held that a final judgment is not required to bar claims that
were not raised as a compulsory counterclaim. The First Circuit, for example, stated that it was
“not persuaded that a final judgment is a sine qua non to invocation of the bar” as “there is nothing
in [Rule 13] limning the term ‘judgment.’” Dindo v. Whitney, 451 F.2d 1, 3 (1st Cir. 1971).
Therefore, the First Circuit found that where a party “knew of the existence of a right to
13
counterclaim, the fact that there was no final judgment on the merits should be immaterial, and a
Rule 13(a) bar would be appropriate.” Id. at 3. Similarly, in an opinion that was subsequently
affirmed by the Sixth Circuit, the United States District Court for the Southern District of Ohio
held that the “operation of Rule 13(A) does not depend on previously asserted counterclaims being
fully adjudicated on their merits; it simply requires that all claims existing at the time the pleading
is filed, and arising out of the same transaction or occurrence, be included in the first action or be
forever barred.” McConnell v. Applied Performance Techs., Inc., 2002 WL 32882707, at *9 (S.D.
Ohio Dec. 11, 2002), aff’d, 98 F. App’x 397 (6th Cir. 2004). Although the Seventh Circuit has
been less far-reaching in its decisions, it has demonstrated some flexibility in applying the final
judgment rule by holding that a district court’s denial of a motion to dismiss can be sufficiently
final for purposes of collateral estoppel. Gilldorn, 804 F.2d at 393.
As a result of the foregoing, the lack of a final judgment with prejudice in this matter does
not mean that Ms. Shopf’s right to bring a claim arising out of the transaction or occurrences that
are the subject matter of Plaintiffs’ request for declaratory judgment would be restored. If so then
Plaintiffs already possess the protection they would seek via an advisory opinion under the
compulsory counterclaim rule and pursuant to judicial estoppel.
However, even if this is not the case and such rights would be restored, Ms. Shopf is correct
in pointing out that “the threat of suit, however immediate, is not by itself sufficient for the
invocation of the federal power to issue a declaratory judgment.” Hyatt Int’l Corp. v. Coco, 302
F.3d 707, 712 (7th Cir. 2002). Moreover, “the declaratory judgment plaintiff must be able to show
that the feared lawsuit from the other party is immediate and real, rather than merely speculative.”
Id. at 712. The threat of suit in this case is no longer immediate and real. As such, the Court lacks
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subject matter jurisdiction over this case and Ms. Shopf’s Motion to Dismiss is GRANTED.
[Filing No. 63.]
IV.
CONCLUSION
For the reasons detailed herein, the Court GRANTS Plaintiffs’ Motion to Substitute Party
Defendant, [83], and GRANTS Ms. Shopf’s Motion to Dismiss, [63]. Plaintiffs’ request for
declaratory judgment is, therefore, DISMISSED WITHOUT PREJUDICE.
Final Judgment shall issue accordingly.
Date: 11/13/2018
Distribution via ECF only to all counsel of record.
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