Patrick Doherty v. FDIC

Summary

The Seventh Circuit held that res judicata did not bar a defendant's fraud and breach of contract claims against a bank after the bank obtained a default judgment against a co-defendant and then voluntarily dismissed the plaintiff-defendant without prejudice. The court reasoned that the default judgment against a different party did not constitute a final judgment on the merits as to the plaintiff's claims, and applying res judicata would not serve the doctrine's purposes of preventing claim-splitting or undermining the prior judgment. The case addresses Illinois res judicata law, the distinction between affirmative defenses and permissive counterclaims, and the effect of voluntary dismissals under 735 Ill. Comp. Stat. 5/2-1009.

Holdings

1. Res judicata does not bar Doherty's claims because Illinois case law does not support applying the doctrine where the default judgment was entered against a different defendant and the plaintiff was dismissed without prejudice before the court considered his defenses, and applying res judicata would not advance the purposes of the doctrine.

Questions Presented

1. Whether res judicata bars Doherty's claims against the bank and its attorneys based on the prior default judgment against Farano.

Disposition

reversed_and_remanded