JACK W. COOPER, Plaintiff, v. RETRIEVAL-MASTERS CREDITORS BUREAU, INC., Defendant-Appellee, APPEAL OF: CELETHA C. CHATMAN, MICHAEL J. WOOD, and COMMUNITY LAWYERS GROUP, LTD., Appellants.
No. 18-2983
United States Court of Appeals For the Seventh Circuit
Decided July 29, 2022
Argued January 19, 2022
Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 1:17-cv-00773 — Manish S. Shah, Judge.
Before WOOD, HAMILTON, and JACKSON-AKIWUMI, Circuit Judges.
The district court dismissed this Cooper II case with prejudice on the theory that the new claims were improperly split from Cooper I. Cooper v. Retrieval-Masters Creditors Bureau, Inc., No. 17-cv-773, 2017 WL 11350966 (N.D. Ill. Oct. 10, 2017). Pursuant to Rule 11 and
I. Facts and Procedural Background
A. The Case on the Merits
In March 2016, plaintiff Jack Cooper sued RMCB after he received a letter from RMCB in February 2016 seeking to collect a consumer debt. Cooper alleged that the letter violated the FDCPA by falsely threatening to report his debt to credit bureaus. See
RMCB moved to dismiss the Cooper II complaint, arguing both that it was improper claim splitting and that Cooper lacked standing to sue. The court granted RMCB‘s motion, reasoning that Cooper had improperly split his claims against RMCB over its misleading debt collection activities and there was “no good reason” to allow Cooper to continue with the second suit arising from the same dispute in Cooper I. Cooper II, 2017 WL 11350966, at *2. As a result, the court entered a judgment dismissing the action with prejudice. Cooper did not appeal that judgment.
B. Sanctions Decision
After winning that judgment on the merits, RMCB moved for sanctions under
Judge Shah gave three reasons for his decision to impose sanctions in Cooper II. First, he said that attorneys Chatman and Wood included misleading allegations in the complaint. Second, he found that Chatman and Wood engaged in a regular practice of claim splitting. As evidence, the court cited not only the claim splitting between Cooper I and Cooper II but also several other lawsuits Chatman and Wood had filed on behalf of other plaintiffs that the court determined involved claim splitting. Third, the court found that Chatman and Wood consistently failed to follow the Northern District of Illinois‘s procedures for identifying related cases.
II. Appellate Jurisdiction
Before reaching the merits of this appeal, we must first address our appellate jurisdiction. Under
On its face, the notice of appeal here leaves a lot to be desired. Cooper‘s counsel, Chatman and Wood and their firm, assert that they are the parties appealing, but none are named in the caption or body of the notice of appeal. Because of this deficiency, RMCB argues, we do not have jurisdiction over this appeal.
In Foreman v. Wadsworth, 844 F.3d 620 (7th Cir. 2016), we considered whether the failure to name the plaintiff‘s counsel in the notice of appeal precluded our jurisdiction over the counsel‘s own challenges to the district court‘s decision, which had censured him. Id. at 625. The counsel in Foreman was not named in either the caption or body of the notice of appeal, but the body said in part that it presented an appeal of the district court‘s order censuring the plaintiff‘s counsel. Id. at 625-26. We exercised jurisdiction over the counsel‘s appeal because he was the only party who had an interest in the censure order. Id. at 626. As a result, his intent to appeal was sufficiently “otherwise clear from the notice,” so that the failure to include his name was harmless. Id., quoting what is now
As in Foreman, the caption and body of the notice of appeal do not mention the attorneys or their firm. The caption refers to plaintiff Jack Cooper “on behalf of himself [a]nd all others similarly situated.” Also, the body of the notice says that “plaintiff Jack Cooper, appeals” the district court‘s judgment granting RMCB‘s motion for relief under Rule 11 and
Despite these deficiencies, we conclude under Foreman and
There is a further complication regarding attorney Wood. He did not file or sign the notice of appeal. See Halim v. Great Gatsby‘s Auction Gallery, Inc., 516 F.3d 557, 564 (7th Cir. 2008) (declining to exercise jurisdiction over the plaintiff‘s counsel‘s apparent challenge to the sanctions order against him where he was not named in the notice of appeal and did not take part in filing the notice or the appeal itself); cf. Retail Flooring Dealers of America, Inc. v. Beaulieu of America, LLC, 339 F.3d 1146, 1149 (9th Cir. 2003) (retaining jurisdiction over plaintiff‘s counsel‘s appeal of the sanctions order against him in part because his name appeared in the notice as the counsel for the plaintiff and he signed and filed the notice of appeal).
Although Wood did not file or sign this notice of appeal, the joint and several liability imposed by the district court‘s order resolves this complication. In tort law, when an injury results from the actions of several parties, “the entire liability attaches jointly and severally, each tortfeasor being responsible for the whole amount ... with a corresponding right to sue the other tortfeasors for contribution.” Stifle v. Marathon Petroleum Co., 876 F.2d 552, 556 (7th Cir. 1989); see also Schadel v. Iowa Interstate Railroad, 381 F.3d 671, 677 (7th Cir. 2004). Applied here, if we were to limit our jurisdiction to Chatman, who filed and signed the appeal on behalf of Cooper, and who identified herself as an attorney with Community Lawyers Group, the appeal might have little point. For example, if we reversed the sanctions order as to only Chatman and the firm, under a theory of contribution Wood would still be entitled to sue Chatman to recover a portion of the sanctions that he paid. We have jurisdiction over Wood‘s appeal even though he did not file or sign the notice of appeal.
To be clear, the defects in this notice of appeal are at the edge of errors we are willing to treat as harmless. Although
III. Merits
We now turn to the merits of this appeal. We review for abuse of discretion a sanctions order pursuant to
Sanctions pursuant to Rule 11 are appropriate when counsel‘s actions reflect a “callous disregard for governing law or the procedures of the court.” Allison v. Dugan, 951 F.2d 828, 834 (7th Cir. 1992). Similarly, we have upheld sanctions under
As noted, the district court here relied on three concerns to justify sanctions against the attorneys. First, it found that Cooper‘s complaint was misleading because there were inconsistencies between the complaint and his testimony during the Cooper I proceedings. Cooper II, 2018 WL 8898621, at *1-2. Second, the district court determined that Chatman and Wood had engaged in a regular pattern of claim splitting, as shown in both the Cooper cases and a series of other cases they had filed on behalf of other plaintiffs. Id. at *2. Third, the court noted that Chatman and Wood consistently failed to identify their related cases in accordance with the Northern District of Illinois‘s local rules. Id. We address these in turn.
A. Misleading Complaint
The district court determined initially that Cooper‘s assertions in his complaint that he visited RMCB‘s website in December 2016 to view payoff options were false. Cooper II, 2018 WL 8898621, at *2. It also found that Chatman and Wood knew the allegations in the complaint were false because they visited RMCB‘s website and they, not Cooper, had discovered the convenience fee notice. Id. This was a clearly erroneous reading of Cooper‘s deposition and trial testimony during the Cooper I proceedings. It does not support sanctions.
Here are the assertions and testimony that the district court referred to when reaching its conclusion that the Cooper II complaint was inconsistent with Cooper‘s prior testimony.
- Cooper‘s complaint alleged that “On or about December 9, 2016, Plaintiff logged into his RMCB account to view pay-off options for the alleged debt.” Dkt. 1, ¶ 14.
- During Cooper‘s deposition, he testified that he made payments “by money order or check,” and he “never paid anything online.” He also explained that he did not have the ability to make any payments towards the debt. Dkt. 33-1 at 34:7-15; 70:21-24; 71:1.
- At trial, Cooper reiterated that he never paid his bills online and responded in the affirmative when asked “you never went to go check what the status of a bill was online, correct?” Dkt. 33-2 at 18:4-17.
- During the trial, RMCB‘s counsel also asked Cooper: “You testified earlier, sir, that you don‘t go on to websites to look into options for payment, correct,” and Cooper responded “yes.” Dkt. 33-2 at 25:23-25.
- As a follow up, RMCB‘s counsel asked: “And you testified earlier that you had absolutely no money to be able to pay the debt off, correct,” and Cooper responded “yes.” Dkt. 33-2 at 26:1-3.
- Finally, RMCB‘s counsel asked: “But you went to [RMCB‘s] website and accessed the information, correct,” and Cooper responded: “Through the help of the attorneys.” Dkt. 33-2 at 26:4-6.
We find two key errors in the district court‘s account of the facts. First, the
That misstatement also led to the second error in the district court‘s interpretation of the evidence. According to the district court, attorneys Chatman and Wood knew that the assertions in Cooper‘s complaint were false because when he was asked at trial whether he visited RMCB‘s website, Cooper said “Through the help of the attorneys.” Dkt. 33-2 at 26:6. The court interpreted this response to mean that Chatman and Wood, not Cooper, had visited RMCB‘s website. Cooper II, 2018 WL 8898621, at *2. Thus, the court concluded, Chatman and Wood misled the court when they wrote otherwise in the Cooper II complaint. Id.
Cooper‘s response was not a clear assertion that he was not involved in the process of accessing RMCB‘s website or finding the convenience fee requirement. Chatman and Wood could have offered “help” in a variety of ways, from directing Cooper which buttons to click once he was on the website to informing him that even if he could not make a payment at that time, he could still view his options online. The district court instead construed “help” to mean that Chatman and Wood went on the website by themselves, without Cooper, and noticed the convenience fee requirement. In deeming the complaint misleading, the district court read too much into the testimony and the complaint.
Although the district court expressed concern about the allegations in Cooper‘s complaint that it thought were misleading, it did not think they alone justified sanctions. Cooper II, 2018 WL 8898621, at *2. Instead, what “crossed the line” was the claim splitting in Cooper II and Chatman and Wood‘s general practice of claim splitting reflected in other cases. Id. We turn to that issue next.
B. Claim Splitting
1. Claim Splitting in Cooper II
Claim splitting draws on and is a subset of the doctrine of res judicata. Scholz v. United States, 18 F.4th 941, 951 (7th Cir. 2021). Res judicata prevents parties from relitigating claims that were or could have been raised in a prior action for which there is now a final judgment on the merits. Barr v. Board of Trustees of Western Illinois Univ., 796 F.3d 837, 839 (7th Cir. 2015). In particular, res judicata blocks a subsequent lawsuit “if there is (1) an identity of the parties in the two suits; (2) a final judgment on the merits in the first; and (3) an identity of the causes of action.” Id. at 840. The elements of claim splitting are similar, except that a final judgment on the merits in the first action is not required. Scholz, 18 F.4th at 952. Instead, the question is “whether the first suit, assuming it were final, would preclude the second suit.” Roumann Consulting Inc. v. Symbiont Construction, Inc., No. 18-c-1551, 2019 WL 3501527, at *6 (E.D. Wis. Aug. 1, 2019), quoting Katz v. Gerardi, 655 F.3d 1212, 1218 (10th Cir. 2011). We have recognized one important practical difference between res judicata and claim splitting: claim splitting allows a trial court to exercise discretion, while res judicata does not. Scholz, 18 F.4th at 952.
The district court dismissed the Cooper II complaint with prejudice for claim splitting. The court explained that Cooper II was “about the same defendant attempting to collect the same debt from the same plaintiff through a communication that was set into motion by the same communication challenged in the first lawsuit.” Cooper II, 2017 WL 11350966, at *2. Because Cooper‘s claims involved the same transaction, the court determined that they should have been resolved together in one action. Id. Cooper did not appeal the court‘s judgment dismissing Cooper II, so the merits are not before us. But we must consider the merits of that finding to the extent that the court relied on it to sanction Chatman and Wood.
Like most rules in the law, the general rule of res judicata has limits and exceptions. One limit is that res judicata does not apply to claims that accrued after the prior suit was filed. Smith v. Potter, 513 F.3d 781, 783 (7th Cir. 2008). There is also an exception for claims that were expressly reserved by the prior court for later adjudication. Central States, Southeast and Southwest Areas Pension Fund v. Hunt Truck Lines, Inc., 296 F.3d 624, 629 (7th Cir. 2002); see also Sklyarsky v. Means-Knaus Partners, L.P., 777 F.3d 892, 896 (7th Cir. 2015). We do not have an express reservation here by the first district court, so we focus on the limit for claims that accrued after the first action was filed.
Claims arising from continuous violations of rights or new discrete harms that occurred after the prior suit was filed are exempt from res judicata‘s bar. Smith, 513 F.3d at 783. We have noted that “plaintiffs need not amend filings to include issues that arise after the original suit is lodged.” Doe v. Allied-Signal, Inc., 985 F.2d 908, 915 (7th Cir. 1993). In the same vein, we have affirmed district court denials of a plaintiff‘s motion to amend or supplement a complaint to add new claims because those claims, which arose from a different act and time than the first suit, could be raised in a subsequent lawsuit. E.g., Chaveriat v. Williams Pipe Line Co., 11 F.3d 1420, 1429 (7th Cir. 1993).
This treatment of newly accrued claims is an important limit on res judicata. But it can be difficult for parties or their lawyers to know whether it will apply until they file a second lawsuit. For example, here, Cooper says he noticed RMCB‘s convenience fee requirement when he visited the RMCB website almost nine months after he filed his complaint in Cooper I. Dkt. 1, ¶ 14. The record does not show whether the convenience fee notice was on RMCB‘s website before or on March 3, 2016, when Cooper filed Cooper I. If the notice was not on RMCB‘s website at the time, then Cooper likely could not have learned about it before he filed Cooper I and the exception for newly accrued claims would apply. Cooper had two options for pursuing his new claim based on RMCB‘s convenience fee: (1) move to supplement or amend Cooper I, or (2) file a new lawsuit, which we have advised parties they may do for newly accrued claims. Doe, 985 F.2d at 915. But there are risks in relying on Doe and filing a new action. Recall that claim splitting calls for an exercise of discretion in the trial court. A court could allow the second suit or could determine that the exception does not apply and that the second suit should be barred. It‘s also possible that a district court might base its
The district court assumed that Cooper could have discovered the convenience fee requirement on RMCB‘s website before he filed his complaint in Cooper I. Cooper II, 2017 WL 11350966, at *2. As a result, it concluded, the limits for continuing violations and newly accrued claims did not save the new case from res judicata. Cooper II, 2018 WL 8898621, at *2 n.4. The court also suggested that Cooper could have avoided the consequences of claim splitting and res judicata by filing a motion to amend his complaint in Cooper I. Id. at *1.
The district court‘s alternative may not have fully appreciated the potential effects of a denied motion to amend or supplement, which we discussed in Arrigo v. Link, 836 F.3d 787 (7th Cir. 2016). In Arrigo, the district court denied the plaintiff‘s motion to amend her complaint to add related claims because her request was untimely. On appeal, we upheld that decision. Id. at 798. Following that denial, but before a final judgment was entered in the first lawsuit, the plaintiff had filed a new action asserting the excluded claims. The district court had also dismissed the new action. Id. at 799-800.
Although the court acknowledged that there was not yet a final judgment in the first suit, it reasoned that it would be a waste of judicial resources to wait for a final judgment to dismiss the second suit, which was likely precluded by the first. Id. at 799. Assuming that the plaintiff‘s second suit was precluded, we agreed with the district court‘s position. Id. at 799-800. We reasoned that allowing the plaintiff to continue with her second suit would also result in the same prejudice and inefficiency that justified the denial of her motion to amend, so that dismissal was proper. Id. at 800.
Whichever path Cooper chose here — move to supplement in Cooper I or file a new lawsuit — he faced uncertainty about how res judicata might be applied. In the face of that uncertainty, his counsel chose to file the new lawsuit, Cooper II. It may well be that the better option would have been for Cooper to take his chances with a motion to supplement or amend. But Chatman and Wood‘s choice not to pursue that course is not the sort of “callous disregard for governing law or the procedures of the court,” Allison, 951 F.2d at 834, or “serious and studied disregard for the orderly process of justice,” Burda, 2 F.3d at 777 (citation omitted), that could justify sanctions under Rule 11 or
We recognize that the FDCPA is structured to incentivize claim splitting, and that district judges need to keep an eye out for that prospect. The Act caps statutory damages for plaintiffs to $1,000 per action.
2. General Pattern and Practice of Claim Splitting
In addition to its view of claim splitting in Cooper II, the district court
In Horia v. Nationwide Credit & Collection, Inc., 944 F.3d 970 (7th Cir. 2019), we considered whether the plaintiff‘s second suit was precluded by the judgment in a prior suit, against the same defendant for a similar violation of the FDCPA. We held that the second suit was not barred. Id. at 974. Under the FDCPA, we explained: “Discrete and independently wrongful acts produce different claims, even if the same wrongdoer commits both offenses and the second wrong is similar to the first.” Id. The parties and statutory violations were the same in the two Horia cases, but the debts were different and owed to different creditors. The defendant‘s failure to comply with the FDCPA thus caused a separate injury associated with each debt, and the second suit was not precluded by the first. We recognized in Horia the Act‘s incentive for filing multiple actions: “A statutory cap per case, rather than per bill collector, induces debtors to file more cases. Judges aren‘t authorized to turn per-case caps into per-defendant caps; that choice is legislative.” Id.
Relying on a similar analysis here, we note that the cases the district court cited did not involve improper claim splitting. See Cooper II, 2018 WL 8898621, at *2. Each set of cases, filed by the same plaintiff against the same defendant, was based on different debts and in some cases those debts were even owed to different creditors. See, e.g., Carchi v. Midland Funding, LLC, 17-cv-04897 (N.D. Ill.) (filed June 30, 2017) (debt owed to Citibank); Carchi v. Midland Funding, LLC, 17-cv-05446 (N.D. Ill.) (filed July 25, 2017) (debt owed to Synchrony Bank).1 The district court‘s reliance on those cases to find that Chatman and Wood had engaged in a pattern of claim splitting was based on a mistaken view of the law, at least in light
of our intervening decision in Horia. The claim splitting ground does not support sanctions here.
C. Failure to Identify Related Cases
The district court‘s final justification for its sanctions order was that Chatman and Wood consistently failed to follow Northern District of Illinois procedures requiring parties to identify related cases. In particular, the Civil Cover Sheet that a party files with a complaint includes a section for “related case(s) if any.” N.D.
While these procedures are helpful for judicial economy and organization, Chatman and Wood‘s apparent failure to comply does not, by itself, justify monetary sanctions. Either party can designate a case as related. Sanctioning one party for failing to do so when there are opportunities for the other party to correct that failure would not be justified, at least absent aggravating circumstances not shown here.
The district court‘s stated grounds for imposing monetary sanctions against counsel in this case do not support the sanctions. The sanction award is REVERSED.