Judges: Easterbrook
Filed: Dec. 09, 2016
Latest Update: Mar. 03, 2020
Summary: In the United States Court of Appeals For the Seventh Circuit _ No. 16---2902 NALCO COMPANY, Plaintiff---Counterdefendant---Appellee, v. DAVID T. CHEN, Defendant---Counterplaintiff---Appellant, v. NALCO MOBOTEC, INC., Counterdefendant---Appellee. _ Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 12 C 9931 — Harry D. Leinenweber, Judge. _ ARGUED DECEMBER 5, 2016 — DECIDED DECEMBER 9, 2016 _ Before EASTERBROOK and ROVNER, Circuit Judg
Summary: In the United States Court of Appeals For the Seventh Circuit _ No. 16---2902 NALCO COMPANY, Plaintiff---Counterdefendant---Appellee, v. DAVID T. CHEN, Defendant---Counterplaintiff---Appellant, v. NALCO MOBOTEC, INC., Counterdefendant---Appellee. _ Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 12 C 9931 — Harry D. Leinenweber, Judge. _ ARGUED DECEMBER 5, 2016 — DECIDED DECEMBER 9, 2016 _ Before EASTERBROOK and ROVNER, Circuit Judge..
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In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 16-‐‑2902
NALCO COMPANY,
Plaintiff-‐‑Counterdefendant-‐‑Appellee,
v.
DAVID T. CHEN,
Defendant-‐‑Counterplaintiff-‐‑Appellant,
v.
NALCO MOBOTEC, INC.,
Counterdefendant-‐‑Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 12 C 9931 — Harry D. Leinenweber, Judge.
____________________
ARGUED DECEMBER 5, 2016 — DECIDED DECEMBER 9, 2016
____________________
Before EASTERBROOK and ROVNER, Circuit Judges, and
SHADID, District Judge.*
* Of the Central District of Illinois, sitting by designation.
2 No. 16-‐‑2902
EASTERBROOK, Circuit Judge. Nalco and David Chen con-‐‑
ducted a joint venture to sell environmental equipment in
China. Nalco owned 55% of the venture, Chen 40%, and a
third party 5%. When the joint venture (Nalco Mobotec En-‐‑
vironmental Protection Technology (Shanghai) Co., or
NMEPT) encountered business problems, Nalco guaranteed
a loan, which NMEPT was unable to cover. Nalco paid the
creditor and sued Chen (under the diversity jurisdiction) for
his 40% share of the outlay. The district court entered judg-‐‑
ment in Nalco’s favor for more than $2 million. 2014 U.S.
Dist. LEXIS 76207 (N.D. Ill. June 4, 2014).
Chen filed counterclaims against both Nalco and a sub-‐‑
sidiary, Nalco Mobotec, Inc. (NMI), through which Nalco
had made its investment in the joint venture. Chen contend-‐‑
ed that NMI had violated his rights under the agreement by
causing the joint venture to borrow $300,000 without his ap-‐‑
proval, even though the agreement required all investors’
consent for borrowing money. When the joint venture did
not repay this loan, the creditor petitioned it into bankruptcy
under Chinese law—another violation of the agreement,
Chen maintained. As Chen described things, the lender was
doing Nalco’s bidding in an effort to get around a clause of
the agreement requiring the three investors’ unanimous con-‐‑
sent for bankruptcy proceedings. Nalco wanted to wind up
the unprofitable venture, but Chen preferred to keep it alive
(if dormant) in order to protect its intellectual property.
Chen’s counterclaim included 12 counts under the laws of
both China and Illinois. The district court granted summary
judgment against Chen on 11 of the 12, see 2015 U.S. Dist.
LEXIS 68095 (N.D. Ill. 2015), and he soon abandoned the
twelfth. At this point the suit was over, but no one appealed.
No. 16-‐‑2902 3
Chen is not reconciled to his loss, however, and filed a
new suit, this time in China. He named as the defendant
Mobotec LLC (Mobotec). Contending that Chen was at-‐‑
tempting to relitigate claims already resolved in this nation,
Nalco asked the district court to enjoin him from pursuing
the Chinese litigation. The court issued an anti-‐‑suit injunc-‐‑
tion, 2016 U.S. Dist. LEXIS 75698 (N.D. Ill. June 10, 2016), and
this time Chen appealed.
His principal argument is that Mobotec was not a party
to the Illinois litigation and therefore cannot benefit from the
Illinois judgment. That would be a questionable proposition
even if Mobotec were a distinct entity, for federal courts no
longer require mutuality in civil litigation. See Parklane Hosi-‐‑
ery Co. v. Shore, 439 U.S. 322 (1979); Blonder-‐‑Tongue Laborato-‐‑
ries, Inc. v. University of Illinois Foundation, 402 U.S. 313
(1971). Having raised and lost his claims under the joint ven-‐‑
ture agreement, Chen is hard pressed to explain why he is
entitled to another round of litigation. But then one might
ask what skin it is off Nalco’s nose whether Chen seeks and
gets relief against Mobotec; why would Nalco or NMI even
have standing to protest?
Their answer, seconded by the district court, is that NMI
and Mobotec are the same entity. Relying on documents
from Delaware’s Secretary of State, the district judge found
that Nalco Mobotec, Inc., first changed its organizational
form from a corporation to a limited liability company, be-‐‑
coming Nalco Mobotec LLC, and then changed its name to
Mobotec LLC as part of the sale of this business to Power
Industrial in July 2013. Nalco retained a contractual right to
act for Mobotec in connection with the dispute about the
joint venture with Chen, and doubtless a duty to indemnify
4 No. 16-‐‑2902
Power Industrial for any loss, which explains why this litiga-‐‑
tion proceeded as it did. The district court wrote that, be-‐‑
cause NMI and Mobotec are just different names for the
same thing, Chen cannot avoid the consequences of his loss
by changing the entity’s name on legal papers in China.
Chen protests that he was surprised by the district
judge’s conclusion. Nalco had filed a lawyer’s declaration
analyzing whether the Chinese claims overlapped those in
Illinois, and the Delaware documents were attached to this
declaration. Chen maintains that, when the district court
struck this declaration on the ground that the lawyer had not
demonstrated expertise in Chinese law, the judge disabled
himself from relying on the attachments and made it unnec-‐‑
essary for Chen to discuss their significance. When the at-‐‑
tachments played a role in the district court’s decision, Chen
declares, he was bushwhacked.
There are two problems with this line of argument. One
is that the judge was free to get the documents from Dela-‐‑
ware and to take judicial notice of them, whether or not they
had been tossed out along with the declaration to which they
were attached. The other is that there would be no point in
remanding for further proceedings because, in the months
since the district court acted, Chen has not offered any rea-‐‑
son to doubt the judge’s understanding of the corporate
documents. Chen’s appellate brief does not contend that the
judge was wrong in finding that NMI and Mobotec are dif-‐‑
ferent names for the same thing, though he has had plenty of
time to find any flaws in the judge’s reasoning or its docu-‐‑
mentary foundation. To the contrary, Chen’s suit in China
seeks to hold Mobotec liable for NMI’s acts relating to the
No. 16-‐‑2902 5
joint venture. What could be the basis for that approach, un-‐‑
less the two names denote one continuing business entity?
Still, Chen insists, Nalco is estopped to deny that Mobo-‐‑
tec is a different entity. That’s because during discovery
Nalco said that it could not produce certain documents held
by Mobotec. Having taken that stance and won (at least,
won an order concerning discovery) Nalco cannot reverse
course, the argument goes. We need not consider how far
judicial estoppel, as opposed to law of the case, governs pro-‐‑
ceedings within a single lawsuit. Cf. New Hampshire v. Maine,
532 U.S. 742, 749–51 (2001); Astor Chauffeured Limousine Co. v.
Runnfeldt Investment Corp., 910 F.2d 1540, 1547–48 (7th Cir.
1990). For Chen has lifted Nalco’s statement out of context.
Recall that NMI was sold to Power Industrial in 2013. Nalco
told the district court that it could not get the documents—
not because Mobotec was a different entity but because it
had a new owner, and Nalco could not rummage through its
files at will. Nalco was inviting Chen to serve a third-‐‑party
discovery request, which he elected not to do. Nalco was not
representing that NMI and Mobotec are different businesses.
Civil litigants are entitled to take inconsistent positions with-‐‑
in a single suit, see Fed. R. Civ. P. 8(d)(3), but Nalco has not
been inconsistent in this one.
Chen has a second line of argument against the district
court’s injunction. One might have expected Chen to invoke
principles of international comity and contend that the Chi-‐‑
nese court, applying Chinese law, is the right body to ascer-‐‑
tain whether Chen is attempting inappropriate litigation. For
all we know, China may not use the law of claim or issue
preclusion at all (these are common-‐‑law concepts, and China
is not a common-‐‑law nation) and may rely on awards of at-‐‑
6 No. 16-‐‑2902
torneys’ fees or some other device to discourage losers from
continuing their battles. Or China may see more difference
between Chen’s claims there and his claims here than a fed-‐‑
eral judge in this nation perceives.
But comity is not Chen’s theme. His lawyer told us at
oral argument that it had been considered but deliberately
omitted from the appellate brief. Instead he relies entirely on
a doctrine of American law: The difference between permis-‐‑
sive and compulsory counterclaims. The sort of claims ad-‐‑
vanced in China, Chen asserts, would have been permissive
counterclaims under Fed. R. Civ. P. 13(b). And since he was
free to omit them from Nalco’s suit, he is equally free to as-‐‑
sert them in China.
This would be a powerful argument if Chen had done
nothing but defend against Nalco’s claim for his share of the
guaranty. But that’s not what he did. He added NMI as a
third-‐‑party defendant and asserted 12 counterclaims against
both Nalco and NMI. Having elected to take the offensive,
Chen was obliged to raise all claims that stem from the same
transaction or series of related transactions (what courts
sometimes call the “core of operative facts”). See Restatement
(Second) of Judgments §24 (1982) (rule against claim splitting).
Chen did not try to raise US counterclaims in the US and
Chinese counterclaims in China, a strategy that our nation’s
rules of preclusion allow if the reservation is expressed to
and accepted by the original court. See Restatement §26(1)(b).
Instead his 12 counterclaims included several resting on
Chinese law. Under ordinary rules of claim preclusion, ex-‐‑
emplified by Restatement §24, the claims now pending in
China arise from the same set of related transactions as his
12 counterclaims and therefore had to be litigated together
No. 16-‐‑2902 7
with them. As Restatement §25 puts it, “The rule of §24 ap-‐‑
plies to extinguish a claim by the plaintiff against the de-‐‑
fendant even though the plaintiff is prepared in the second
action (1) To present evidence or grounds or theories of the
case not presented in the first action, or (2) To seek remedies
or forms of relief not demanded in the first action.” This is
known as the doctrine of merger and bar. See also Restate-‐‑
ment §19.
Chen does not contest this understanding of preclusion
or dispute the way the district judge applied it. He rests his
appeal on the distinction between permissive and compulso-‐‑
ry counterclaims, a distinction of no moment given his deci-‐‑
sion to add NMI as a party and present 12 counterclaims in
Nalco’s debt-‐‑collection suit. See Restatement §23 (“Where the
defendant interposes a claim as a counterclaim and a valid
and final judgment is rendered against him on the counter-‐‑
claim, the rules of bar are applicable to the judgment.”). The
permissive/compulsory distinction is a real one, but it is a
red herring for current purposes.
AFFIRMED
