Unpublished Dispositionnotice: Seventh Circuit Rule 53(b)(2) States Unpublished Orders Shall Not Be Cited or Used As Precedent Except to Support a Claim of Res Judicata, Collateral Estoppel or Law of the Case in Any Federal Court Within the Circuit.jacqueline Davis-gilbert, Plaintiff, v. Alberto-culver Company, Defendant-appellee.appeal of Hubbard & Mahmoud, Limited, Attorneys for Plaintiff, 929 F.2d 703 (7th Cir. 1991)

ORDER

The appellants, Hubbard & Mahmoud, Ltd., appeal from the district court's order awarding attorney's fees and costs to the appellees as a sanction pursuant to Federal Rule of Civil Procedure 11. The district court imposed sanctions because the suit filed in this case was barred by res judicata.

On May 6, 1988, the plaintiff Jackie Davis-Gilbert filed suit in the district court alleging employment discrimination by defendant Alberto-Culver Company based on her sex. This action was brought pursuant to Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e, et seq. The suit was dismissed on November 4, 1988 because it was not filed within the 90-day statutory limitation which began to run upon plaintiff's receipt of the Equal Employment Opportunity Commission's right-to-sue letter. The failure to file the suit in a timely manner was caused by the negligence of the appellants, Hubbard & Mahmoud, Ltd. Apparently, an office staff member received the right-to-sue letter but failed to indicate the date the notice was received. The notice was stamped as received several days later. Plaintiff relied on the erroneous date, and the action was filed too late.

On March 9, 1989, a second suit was filed in the district court, based upon diversity jurisdiction, alleging that the Alberto-Culver Company breached its employment contract with Davis-Gilbert. It is the filing of this second suit that is the basis for the sanctions against appellants Hubbard & Mahmoud, Ltd.¹ 

The defendants brought a motion requesting dismissal and the imposition of Rule 11 sanctions contending that the second suit was barred by the doctrine of res judicata. The defendants argued that pursuant to federal law, it was clear that all claims could have been brought in the earlier action and, thus, were barred. The defendants maintained that counsel for plaintiff failed to make a reasonable inquiry into existing law. Had counsel done so, they would have known that the action was not warranted by existing law; therefore, the defendants requested the imposition of Rule 11 sanctions.

In response to this motion, appellants argued that because this was a diversity suit, the United States Supreme Court's decisions in Erie R.R. Co., 304 U.S. 64 (1938) and Guaranty Trust Co. v. York, 326 U.S. 99 (1945) mandates the application of Illinois res judicata law. They maintained that under Illinois law, the suit would not be barred.²  In the alternative, they argued that " [e]ven if the law in this circuit is as stated by defendant", the district court should adopt an exception to res judicata based on policy considerations. Counsel contended that the exception should come into play when there was "a reasonable mistake in the plaintiff's prosecution of her first action." Therefore, neither dismissal of the suit nor sanctions were appropriate. Counsel also maintained that even if the suit were barred, Rule 11 sanctions were inappropriate because they were making a good faith argument for extension modification or reversal of existing law.

The defendants responded by pointing out that the law of this circuit is clear that when the first suit is filed in federal court, federal rules of res judicata apply. The defendants also contended that plaintiff could not argue for the extension, modification or reversal of existing law because counsel for plaintiff ignored rather than acknowledged existing law. In support of their position, the defendants cited current Seventh Circuit caselaw.

On May 19, 1989, the district court granted the defendant's motion to dismiss and the motion for sanctions. The district court agreed that pursuant to the law of this circuit, the second action was barred by res judicata. The court also determined that sanctions were appropriate because plaintiff's counsel failed to make a "reasonable inquiry" into the existing law. The district court held that " [b]ecause this lawsuit should never have been brought, Plaintiff's counsel is ordered to pay all of Defendant's reasonable costs and attorney's fees incurred in litigating the suit."

On June 13, 1989, after the court entered judgment, counsel for plaintiff filed a motion and supplemental memorandum in opposition to the motion to dismiss and request for sanctions.³  This was the first time that counsel for plaintiff acknowledged the existence of adverse precedent. The court denied the motion which it treated as a motion for reconsideration.

" [A]n appellate court should apply an abuse-of-discretion standard in reviewing all aspects of a district court's Rule 11 determination." Cooter & Gell v. Hartmarx Corp., --- U.S. ----, 110 S. Ct. 2447, 2461 (1990). Therefore, we must determine whether the district court abused its discretion when it found that plaintiff's counsel failed to make a "reasonable inquiry" into existing law.

At the time the second suit was filed, the law in this circuit clearly provided that "when 'the prior litigation was brought in federal court, the federal rule of res judicata' applies." Shaver v. F.W. Woolworth Co., 840 F.2d 1361, 1364 (7th Cir. 1988) (quoting Matter of Energy Cooperative, Inc., 814 F.2d 1226, 1230 (7th Cir. 1987), cert. denied, --- U.S. ----, 108 S. Ct. 294 (1987)); Conner v. Reinhard, 847 F.2d 384 (7th Cir. 1988). It was equally apparent under federal law that res judicata bars any issue that could have been raised in prior litigation if the actions arise from a single core of operative facts. Shaver, 840 F.2d at 1364, 1365 (citations omitted). This court in Shaver also warned about the futility of arguing that public policy considerations should create exceptions to the application of res judicata.

This approach is ill-advised for " [o]nce a litigant satisfies the prongs of the test, a later suit should be barred since there is little, if any, room left for making further policy arguments.

Id. at 1364 (quoting Smith v. City of Chicago, 820 F.2d 916, 917 (7th Cir. 1987)).

The appellants completely ignored the numerous cases from this circuit that contradicted their arguments. It was only after the district court entered judgment granting the motion to dismiss and imposing sanctions that the appellants tried to supplement their earlier motions by recognizing the existence of two cases which were adverse to their position. This acknowledgement comes too late. "We have told lawyers that ' [t]he ostrich-like tactic of pretending that potentially dispositive authority against a litigant's position does not exist is as unprofessional as it is pointless." Mars Steel Corp. v. Continental Bank N.A., 880 F.2d 928, 939 (7th Cir. 1989) (quoting Hill v. Norfolk & Western Ry., 814 F.2d 1192, 1198 (7th Cir. 1987)). "Litigants 'may not pretend that the law favors their view and impose on the court or their adversaries the burden of research to uncover the basic rule.' " Id. at 938 (quoting In re Central Ice Cream Co., 836 F.2d 1068, 1073 (7th Cir. 1987)). The district court did not abuse its discretion is awarding Rule 11 sanctions.

The defendants also petition this court to impose sanctions on the appellants of double costs and attorneys' fees pursuant to Federal Rule of Appellate Procedure 38. In the exercise of our discretion, we decide not to impose Rule 38 sanctions.

The decision of the district court is

AFFIRMED.