Window World of Chicagoland v. Window World, Inc., No. 15-2224 (7th Cir. 2016)

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Justia Opinion Summary

Hampton's contracts with Window World, allowed Hampton to use WW trademarks. WW alerted Hampton that their dealings were subject to the Illinois Franchise Disclosure Act, and that Hampton had 35 days to elect between rescinding the contracts and signing a franchise agreement. Hampton did neither, but filed suit, alleging violation of the Act and fraud. WW sued under the Lanham Act (Suit 2). Hampton returned a waiver of service, but did not hire a lawyer for Suit 2. Hampton dismissed Suit 1, without prejudice, but did not respond to Suit 2. WW successfully moved for default, then for default judgment. All motions and notices were in the electronic filing system, but Hampton was not using that system and did not respond. The court entered a default judgment for $100,000 in damages and costs, and an injunction. Hampton continued calling his business Window World, but did not make payments or pay the judgment. Hampton closed the business, then filed Suit 3, presenting the same claims as Suit 1, and sought to reopen Suit 2 and set aside the judgment. The judge concluded that Hampton’s failure to follow the electronic filings, plus his professed belief that Suits 1 and 2 had been dismissed together, amounted to excusable neglect, but conditioned reopening of Suit 2 on payment of $33,000. Hampton did not pay. The court reinstated the default judgment. Suit 3 was dismissed; Hampton’s claims in Suit 3 were compulsory counterclaims in Suit 2. The Seventh Circuit affirmed. If the suits are separate, claim preclusion blocks Hampton’s current claims; if they are consolidated, law of the case leads to the same outcome.

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In the United States Court of Appeals For the Seventh Circuit ____________________ No. 15-­ 2224 WINDOW WORLD HAMPTON, OF CHICAGOLAND, LLC, and DAVID L. Plaintiffs-­ Appellants, v. WINDOW WORLD, INC., et al., Defendants-­ Appellees. ____________________ Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 13 C 4624 — John Robert Blakey, Judge. ____________________ ARGUED JANUARY 7, 2016 — DECIDED JANUARY 27, 2016 ____________________ Before EASTERBROOK, MANION, and SYKES, Circuit Judges. EASTERBROOK, Circuit Judge. Between 2005 and 2009 Da-­ vid Hampton and his business (collectively Hampton) en-­ tered into several contracts with Window World, Inc., which allowed Hampton to use its trademarks and business meth-­ ods for the retail sale and installation of windows and doors. In 2011 Window World alerted Hampton that their dealings were subject to the Illinois Franchise Disclosure Act, 815 2 No. 15-­ 2224 ILCS 705/1 to 705/44. (Earlier in 2011 the Attorney General of Illinois had sued Window World under that Act; the case was settled and a consent decree entered a month after Win-­ dow World notified Hampton.) Window World told Hampton that he had 35 days to elect between rescinding the contracts (which would mean stopping the use of Window World’s intellectual property) and signing a formal franchise agreement. Hampton did not pursue either alternative. Instead he filed a federal suit, un-­ der the diversity jurisdiction, accusing Window World of violating the Act, of fraud, and of other wrongs, all under state law. This suit, No. 12 C 579, was assigned to Judge Lindberg. We call it Suit 1. While Suit 1 was pending, Window World filed litigation of its own, under the Lanham Act, seeking (among other things) damages for continued use of its intellectual proper-­ ty after the 35-­ day option had expired, and an injunction against future use of its marks and methods. That suit, No. 12 C 4329, also was assigned to Judge Lindberg. We call it Suit 2. In Suit 2 Hampton signed and returned a waiver of ser-­ vice, see Fed. R. Civ. P. 4(d), which meant that the time to answer the complaint started to run. But Hampton did not hire a lawyer to represent him in Suit 2, even though he was represented by counsel in Suit 1. Hampton dismissed Suit 1, without prejudice, three weeks after Suit 2 began, but he did not respond to the complaint in Suit 2. After enough time had passed, Window World moved in Suit 2 for entry of de-­ fault, which was granted, and then for default judgment. All motions and notices in Suit 2 were duly entered in the court’s electronic filing system, but Hampton was not pay-­ No. 15-­ 2224 3 ing attention to that system. So he did not respond to Win-­ dow World’s motions or appear at the hearings scheduled to address them. (Written service on a defaulting party is not required, see Fed. R. Civ. P. 5(a)(2), and Window World did not go the extra mile.) On December 4, 2012, Judge Lindberg entered a default judgment that awarded Window World more than $100,000 in damages and costs and permanently enjoined Hampton from using any of Window World’s intel-­ lectual property (including the name “Window World”) or doing anything that might cause confusion between his business and the Window World franchise organization. Hampton went right on calling his business Window World of Chicagoland but did not make the payments re-­ quired by the contracts. (He had not paid Window World since filing Suit 1.) Nor did he pay a penny of the damages or costs. Oddly, Window World did not ask the district court to hold him in contempt. Hampton has since shuttered the business, which may explain Window World’s inaction. But Hampton has not stopped litigating. In 2013 he filed a new federal suit (Suit 3) presenting the same claims as the dis-­ missed Suit 1. Hampton also asked the district court to reo-­ pen Suit 2 and set aside the default judgment. Judge Lind-­ berg having retired, that request was assigned to Judge Durkin. Judge Durkin concluded that Hampton’s failure to follow the electronic filings in Suit 2, coupled with his professed be-­ lief that Suits 1 and 2 had been dismissed as a package, amounted to excusable neglect that justified vacatur. 2014 U.S. Dist. LEXIS 44244 (N.D. Ill. Apr. 1, 2014). But Judge Durkin added that Hampton’s inaction in Suit 2 had put Window World to unnecessary expense, and he conditioned 4 No. 15-­ 2224 the reopening of Suit 2 on Hampton’s payment of some $33,000. Once again Hampton did not pay. That led Judge Durkin to vacate his vacatur. On August 5, 2015, Judge Durkin reinstated Judge Lindberg’s default judgment (both damages and injunction). Suit 2 then was reassigned to Judge Blakey, who was handling Suit 3. Hampton did not appeal from the re-­ entered judgment in Suit 2. One would have thought this the end of matters, be-­ cause the claims that Hampton presses against Window World in Suit 3 were compulsory counterclaims in Suit 2. When Hampton nonetheless pursued Suit 3, Window World asked Judge Blakey to dismiss it under principles of claim preclusion (res judicata). Judge Blakey did so. He concluded that the twice-­ final, and unappealed, judgment in Suit 2 forecloses any claim that Window World owes damages to Hampton or that Hampton can continue using Window World’s name or other trademarks. Hampton insists on appeal that this decision is mistaken. Preclusion (res judicata) cannot apply, he maintains, because it concerns how the final decision in one suit affects proceed-­ ings in a different suit. Suits 2 and 3 are now the same suit, according to Hampton, because they have been consolidated before Judge Blakey. That contention confuses administrative and full consoli-­ dation. Judge Blakey wrote that the consolidation is for ad-­ ministrative convenience, avoiding the need for multiple district judges to address the same arguments; the suits have not been fully consolidated, he observed, if only because they still carry separate docket numbers. That is why Judge Blakey held that the outcome of Suit 2 is preclusive in Suit 3. No. 15-­ 2224 5 The difference between administrative and full consoli-­ dation is established by Fed. R. Civ. P. 42(a). Subsection (a)(2) provides for full consolidation, while subsections (a)(1) and (a)(3) authorize other forms of consolidation. Suits 2 and 3 have been joined for hearings, see Rule 42(a)(1), rather than fully consolidated under Rule 42(a)(2). Suits administratively consolidated for hearings retain their independent existence. See Gelboim v. Bank of America Corp., 135 S. Ct. 897 (2015) (same result for cases consolidated under 28 U.S.C. §1407 for pretrial proceedings). So Judge Blakey was right, for the right reason. (Hampton concedes that, if Suit 2 remains sepa-­ rate from Suit 3, his current claims are barred.) Suppose this is wrong, however, and that Suits 2 and 3 have been fully consolidated. The fact remains that Hamp-­ ton is subject to a permanent injunction—and an injunction is immediately appealable under 28 U.S.C. §1291(a) even though the award of trademark damages could not have been appealed (given the assumption of full consolidation) in the absence of a partial final judgment under Fed. R. Civ. P. 54(b). The right doctrine for full consolidation would be law of the case rather than claim preclusion, because the re-­ lief Hampton seeks under state law would be inconsistent with the relief Window World already has received. See Pep-­ per v. United States, 562 U.S. 476, 506 (2011). Hampton gave up his chance to have the judgment in Window World’s fa-­ vor set aside, and there is no other plausible exception to law of the case, which means that it just does not matter which doctrine applies. If the suits are separate, claim preclusion blocks Hampton’s current claims; if they are fully consoli-­ dated, law of the case leads to the same outcome. AFFIRMED