Indian Harbor Insurance Company v. MMT Demolition, Inc.

2014 IL App (1st) 131734, 13 N.E.3d 108

• Court: Appellate Court of Illinois
• Decided: June 13, 2014
• Docket: 1-13-1734
• Status: Unpublished

Opinion

2014 IL App (1st) 131734 No. 1-13-1734 Fifth Division June 13, 2014

IN THE

APPELLATE COURT OF ILLINOIS

FIRST DISTRICT

INDIAN HARBOR INSURANCE COMPANY, as ) Appeal from the Circuit Court Subrogee of Podmajersky Management, Inc., ) of Cook County. ) Plaintiff-Appellant, ) ) No. 10 L 007509 v. ) ) MMT DEMOLITION, INC., ) The Honorable ) Kathy Flanagan, Defendant-Appellee. ) Judge, presiding.

PRESIDING JUSTICE GORDON delivered the judgment of the court, with opinion. Justices McBride and Palmer concurred in the judgment and opinion.

OPINION

¶1 Plaintiff Indian Harbor Insurance Company appeals an order granting summary

judgment to defendant MMT Demolition, Inc., on the ground that plaintiff's subrogation

lawsuit for negligence was precluded by res judicata. The lawsuit concerned property

damage to a building managed by its insured, Podmajersky Management, Inc.

(Podmajersky). Prior to the filing of plaintiff's subrogation suit for negligence against

defendant, two tenants in the building filed a lawsuit against defendant in small claims court

concerning their property damage, which they claimed was also caused by defendant. After a

bench trial, the trial court found for defendant. Defendant argues in the instant case that the No. 1-13-1734

judgment had a preclusive effect against plaintiff in the case at bar. The trial court agreed

and granted summary judgment in defendant's favor. For the following reasons, we reverse.

¶2 BACKGROUND

¶3 Podmajersky is the property manager of the subject property, which consists of a two-

story, mixed residential and commercial building located on South Halsted Street in Chicago.

Plaintiff is the subrogee of Podmajersky. Defendant is an Illinois corporation engaged in the

demolition business, with its principal place of business located in Chicago. Developing

Environments, LP (Developing Environments), which is not a party to this case, is an Illinois

limited partnership that owns a parcel of real property (the neighboring property) adjacent to

the subject property.

¶4 I. The Demolition

¶5 This appeal concerns a lawsuit for negligence arising from the demolition of the

neighboring property. Plaintiff alleges the following facts in its complaint: On or about May

30, 2007, Developing Environments retained defendant to demolish the neighboring property

and remove its debris. Defendant obtained the necessary permits from the City of Chicago to

demolish the neighboring property and the demolition occurred on September 10, 2007.

¶6 The front wall of the neighboring property was attached, by interlocking running board,

to the front wall of the subject property. In order to demolish the neighboring property,

defendant was required to "address the issue of the front walls of both buildings attached via

interlocking running board." Plaintiff alleges that, despite the front walls being attached,

defendant at no relevant time ever isolated the two buildings or cut the roof trusses of the

neighboring property away from the walls of the subject property. Instead, defendant chose

to "push and pull the entire roof framing in order to separate it from the [subject property],

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thus transferring the force to the front wall of the [subject property] and causing said wall to

move outward by approximately five inches and become permanently bowed." Defendant's

actions caused vertical cracks through the masonry walls of the structure of the subject

property, rendered doors and windows inoperable, left the front wall of the subject property

unable to resist any structural loads, compromised the structural integrity, and rendered the

entire building uninhabitable.

¶7 II. The Investigation

¶8 On September 11, 2007, Structure Evaluation Engineers, Inc. (SEE), was authorized by

Podmajersky to conduct an evaluation of the subject property to review the "existing

conditions and damages caused by [defendant] while demolishing the adjacent building." On

September 20, 2007, SEE submitted a letter to Podmajersky detailing its findings. SEE

opined that defendant did not implement proper demolition procedures and, as a result,

damaged the front masonry wall of the subject property and compromised the structural

integrity of the wall. On October 30, 2007, L.J. Shaw & Co. (Shaw), an independent

insurance adjustor hired by defendant to investigate the property damage, sent a letter to

defendant stating that its preliminary investigation of the subject property indicated that

defendant was responsible for the damages and warned it to notify its insurer that it might be

liable for damages. In the course of its investigation, Shaw retained a structural engineering

firm (Engineering Systems, Inc. (ESI)). On November 14, 2007, ESI submitted a report of

its investigation of the subject property to Shaw. The ESI report states, in summary, that the

masonry on the front wall of the subject property was "tied to" the front wall of the

neighboring property by interlocking running bond masonry, that defendant should have

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isolated the two buildings, and that the "cause of distress" to the subject property was from

defendant's demolition operations.

¶9 Plaintiff alleges that it is the bona fide owner of the cause of action set forth in its

complaint, by virtue of having made payments "to or on behalf of" Podmajersky, pursuant to

its insurance policy.

¶ 10 III. The Tenant Lawsuit

¶ 11 On February 19, 2008, two tenants in the subject property, John Bomher and Elizabeth

Jochum (the tenants), filed a pro se lawsuit (the tenant lawsuit) in the small claims court of

the municipal division of the circuit court of Cook County against defendant and

Podmajersky. In their complaint, the tenants allege the following: that they leased a

residence at the subject property and operated home occupation freelance businesses from

their residence. As a result of the demolition defendant performed on September 10, 2007,

the tenants' residence "suffered major damage to the exterior and interior." Podmajersky

gave notice to the tenants to vacate the premises on October 9, 2007, as a result of the

damage caused by defendant. The tenants submitted a claim for their damages, and both

defendant and Podmajersky failed to honor the claim. The tenants alleged $9,912.38 in

damages, plus costs.

¶ 12 On May 15, 2008, the trial court granted Podmajersky's motion to dismiss in the tenant

lawsuit. 1 Podmajersky did not participate in any further proceedings in the tenant lawsuit.

On October 16, 2008, the tenant lawsuit proceeded to a bench trial, and the trial court entered

judgment in favor of defendant. The record does not contain a trial transcript of the trial

1 The record does not disclose the grounds on which Podmajersky sought to be dismissed, nor the grounds on which the trial court based its decision to dismiss Podmajersky.

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proceedings or a bystander's report, nor is there a written order that explains the basis for the

court's rulings.

¶ 13 IV. The Lawsuit at Issue

¶ 14 On June 29, 2010, plaintiff filed a subrogation lawsuit against defendant, alleging that

defendant was negligent in its demolition of the neighboring property, causing $218,343.08

in damages.

¶ 15 In its answer, defendant asserts the affirmative defense of res judicata. Defendant argues

that the lawsuit at issue in this appeal "involves the same cause of action as [did] the Tenant

Lawsuit." Defendant argues that the tenants "shared mutual property rights in the [subject

property]" with Podmajersky, plaintiff's subrogor, and are in privity with Podmajersky for res

judicata purposes.

¶ 16 On December 19, 2012, defendant filed a motion for summary judgment pursuant to

section 2-1005 of the Code of Civil Procedure (735 ILCS 5/2-1005 (West 2010)), claiming

that it was entitled to judgment under the doctrine of res judicata. Defendant claims that all

three factors required for resolution under res judicata had been met because (1) the trial

court's judgment in the tenant lawsuit was final; (2) there is an identity of interests in the

tenant lawsuit and the lawsuit at bar because the tenants and plaintiff both filed negligence

causes of action arising from defendant's demolition activities; and (3) there is an identity of

parties because Podmajersky was a defendant in the tenant lawsuit and Podmajersky shared

the same interests in the subject property as the tenants.

¶ 17 Plaintiff responded to defendant's motion, claiming that none of the requirements for res

judicata had been met. First, plaintiff claims that defendant cannot support its claim that a

final judgment on the merits had been issued in the tenant lawsuit because defendant did not

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include a transcript of the proceedings or a bystander's report before the trial court. Plaintiff

claims that, other than unverified statements by defendant in its brief before this court, "there

is nothing to show that the Court which ruled on the small claims action filed by two tenants

of Podmajersky's building considered any of the evidence disclosed in the instant matter."

Plaintiff next claims that it was not aware of the existence of the tenant lawsuit, claiming that

Podmajersky never informed it of the proceedings. Furthermore, the damage estimation in

the instant case had not yet been finalized when the tenant lawsuit proceeded to trial.

Therefore, plaintiff could not have participated on the merits even if it were aware of the trial

in the tenant lawsuit. Plaintiff also asserts that discovery is not permitted in small claims

court, and defendant never claimed that any discovery occurred in the tenants' lawsuit.

Plaintiff claims that there is "no indication" in the instant case that the two engineering

reports were introduced into evidence in the tenant lawsuit, and it concludes that, because the

reports were "not available 2 to the tenants in their lawsuit," defendant cannot claim that the

tenant lawsuit functioned as a final judgment on the merits in this case for purposes of res

judicata.

¶ 18 Plaintiff argues that the claims were not identical because the tenants filed a cause of

action for lost profits resulting from the interruption of the businesses operated out of the

tenants' residence, whereas plaintiff's lawsuit sought damages for repairs to the subject

property and lost rent. The tenants did not seek any damages related to damage to the subject

property. Plaintiff's damages were not fully known until after the tenant lawsuit proceeded to

2 Defendant disputes the unavailability of at least the SEE report to the tenants. The SEE report was addressed to Podmajersky, and defendant asserts that Podmajersky's office manager testified on the tenants' behalf during trial. The SEE report was issued nearly one year before the trial in the tenant lawsuit. However, as plaintiff asserts, there is no transcript of the proceedings or bystander's report, and, thus, the only indications in the record that the Podmajersky office manager testified at trial are the statements made by defendant in its answer and motion for summary judgment.

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trial, so the tenants could not have represented plaintiff's interests. In a footnote, plaintiff

argues that, because there is no transcript or bystander's report, it is impossible to determine

why the trial court entered judgment for defendant and that the judgment could have been

based on the tenants' failure to prove that defendant owed them a duty, the tenants' failure to

prove their damages, or the tenants' failure to prove defendant's breach of duty (negligence).

¶ 19 Plaintiff also argues that there was no identity of parties because the tenants do not share

the same interests as plaintiff. Plaintiff argues that the tenants did not seek damages related

to the damage to the subject property, the tenants did not share property rights with plaintiff's

subrogor, and the tenants did not have access to the engineering reports.

¶ 20 On April 5, 2013, the trial court granted defendant's motion for summary judgment,

finding that plaintiff's cause of action was barred by the doctrine of res judicata.

Specifically, the trial court found that the decision in the tenant lawsuit was a final judgment

on the merits. The trial court found that res judicata applies not only to matters that were

decided, but matters that could have been decided in the original lawsuit. The trial court

found that an identity of interests exists because the tenants and plaintiff sought recovery for

damages resulting from defendant's negligence in demolishing the adjacent property. The

trial court found that the difference in "amount or extent" of damages was inconsequential

because they arose from the same operative facts. The trial court found an identity of parties,

because (1) the tenants and plaintiff shared the same property interests, and (2) Podmajersky

was a party to the tenant lawsuit, and it could have filed a cross-claim against defendant. The

trial court found that Podmajersky was in possession of at least one engineering report at the

time it was a party to the tenant lawsuit, and could have introduced it in evidence.

¶ 21 Plaintiff filed a timely notice of appeal, and this appeal followed.

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¶ 22 ANALYSIS

¶ 23 Plaintiff raises four issues on appeal: (1) whether the trial court erred in granting

defendant's motion for summary judgment; (2) whether a bench trial in small claims court

brought by a tenant of the subject property constitutes a final judgment on the merits with

respect to all issues involved in plaintiff's lawsuit; (3) whether a small claims lawsuit brought

by a tenant of the subject property presented an identity of causes of action sufficient to

invoke the doctrine of res judicata and bar plaintiff's lawsuit; and (4) whether a small claims

lawsuit brought by a tenant in the subject property presented an identity of parties sufficient

to invoke the doctrine of res judicata and bar plaintiff's lawsuit. For the following reasons,

we reverse the decision of the trial court and remand for further proceedings.

¶ 24 I. Standard of Review

¶ 25 Summary judgment is appropriate only where the pleadings, depositions, and admissions

on file, together with the affidavits, if any, show that there is no genuine issue of material fact

and that the moving party is entitled to a judgment as a matter of law. Williams v.

Manchester, 228 Ill. 2d 404, 417 (2008). In determining whether a genuine issue of material

fact exists, a court must construe the pleadings, depositions, admissions, and affidavits

strictly against the movant and liberally in favor of the opponent. Williams, 228 Ill. 2d at

417.

¶ 26 Summary judgment is a drastic means of disposing of litigation and should therefore be

allowed only when the right of the movant to a judgment in its favor is clear and free from

doubt. Williams, 228 Ill. 2d at 417. The standard of review for appeals arising from

summary judgment is de novo. Williams, 228 Ill. 2d at 417. De novo consideration means

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we perform the same analysis that a trial judge would perform. Khan v. BDO Seidman, LLP,

408 Ill. App. 3d 564, 578 (2011).

¶ 27 II. Res Judicata

¶ 28 The doctrine of res judicata provides that a final judgment on the merits rendered by a

court of competent jurisdiction bars any subsequent actions between the same parties, or their

privies, on the same cause of action. Rein v. David A. Noyes & Co., 172 Ill. 2d 325, 334

(1996). Res judicata extends not only to what was actually decided in the original action, but

also to matters which could have been decided in the original action. Rein, 172 Ill. 2d at 334-

35. "For the doctrine of res judicata to apply, three requirements must be met: (1) there was

a final judgment on the merits rendered by a court of competent jurisdiction; (2) there was an

identity of causes of action; and (3) there was an identity of parties or their privies." Rein,

172 Ill. 2d at 335 (citing Downing v. Chicago Transit Authority, 162 Ill. 2d 70, 73-74

(1994)). If any requirement is not met, res judicata will not apply. See Goodman v. Hanson,

408 Ill. App. 3d 285, 300 (2011) (finding that although the second and third requirements of

res judicata were satisfied, "we cannot find that the first requirement is satisfied and thus the

claim would not be barred by res judicata"). The burden of showing that res judicata applies

is on the party invoking the doctrine. Hernandez v. Pritikin, 2012 IL 113054, ¶ 41.

¶ 29 A. Final Judgment on the Merits

¶ 30 The first requirement of res judicata is a final decision on the merits. "A final judgment

is a determination of the issues presented which ascertains and fixes absolutely and finally

the rights of the parties." Gallaher v. Hasbrouk, 2013 IL App (1st) 122969, ¶ 23. In

Gallaher, we found that an administrative order from the Director of the Department of

Public Health which concluded "only a preliminary, procedural matter *** and left open the

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substantive issue of whether [the plaintiff] should lose her teaching credentials" was not a

final judgment on the merits for purposes of res judicata. Gallaher, 2013 IL App (1st)

122969, ¶ 23. River Park, Inc. v. City of Highland Park, 184 Ill. 2d 290 (1998), examined

whether a dismissal could operate as a final decision on the merits. In River Park, our

Illinois Supreme Court found that "the dismissal of a complaint for failure to state a claim is

an adjudication on the merits [citations], while the dismissal of a complaint for lack of

subject matter jurisdiction is not considered a decision on the merits of that complaint."

River Park, 184 Ill. 2d at 303. A judgment entered in a small claims court case may be a

final judgment on the merits for the purposes of barring a cause of action in a subsequent

non-small-claims case. Kasny v. Coonen & Roth, Ltd., 395 Ill. App. 3d 870, 873 (2009) (the

parties agreed that a judgment in a small claims lawsuit satisfied the final on the merits

requirement of res judicata).

¶ 31 Plaintiff admits that a court of competent jurisdiction rendered a verdict in the tenant

lawsuit and that the tenants' alleged damages arose from the same negligent demolition that

gave rise to plaintiff's claimed damages. However, plaintiff argues that other factors present

in this case undermine the fact that a court of competent rendered a final verdict. For

example, plaintiff states that it was not a party to the tenant lawsuit and was unaware of the

tenant lawsuit during its pendency. Plaintiff cites Agolf, LLC v. Village of Arlington Heights,

409 Ill. App. 3d 211, 221 (2011), to argue that a nonparty's knowledge of pending litigation

is a factor to be considered when determining the applicability of res judicata. However, in

Agolf, the parties agreed that the first two requirements of res judicata, including a final

judgment on the merits, had been satisfied and the remainder of the analysis focused on

whether an identity of parties existed. Agolf, 409 Ill. App. 3d at 219. Therefore, any

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consideration of knowledge would be relevant to the third requirement, and not the first.

Since plaintiff does not argue that the trial court's verdict in the tenant lawsuit was not final

and was not rendered by a court of competent jurisdiction, we cannot say that there was no

final judgment on the merits in the tenant lawsuit. Points not argued in an appellant's brief

are waived. Halpin v. Schultz, 234 Ill. 2d 381, 390 (2009) (citing Ill. S. Ct. R. 341(h)(7) (eff.

Sept. 1, 2006)).

¶ 32 B. Identity of Causes of Action

¶ 33 The second requirement of res judicata is an identity of the causes of action. Our Illinois

Supreme Court "has recognized the validity of the transactional test" to determine whether

there is an identity of the causes of action. River Park, 184 Ill. 2d at 309-10. Under the

transactional test, a court examines the causes of action in " 'factual terms,' " which are

considered " 'coterminous with the transaction[,] regardless of the number of substantive

theories, or variant forms of relief flowing from those theories, that may be available to the

plaintiff, *** and regardless of the variations in the evidence needed to support the theories

or rights.' " River Park, 184 Ill. 2d at 309 (quoting Restatement (Second) of Judgments § 24

cmt. a (1982)). To determine whether there is an identity of the causes of action between the

first and second lawsuit, courts must examine the facts that give rise to the plaintiff's right to

relief, not simply the facts which support the judgment in the first action. Rein v. David A.

Noyes & Co., 172 Ill. 2d 325, 338-39 (1996). The factors relevant to ascertaining whether

the two lawsuits are linked include their "relation in time, space, origin, and motivation,

whether they form a convenient trial unit, and whether their treatment as a single unit

conforms to the parties' expectations and business usage or understanding." Cload v. West,

328 Ill. App. 3d 946, 951 (2002). The test is to be applied pragmatically. Cload, 328 Ill.

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App. 3d at 951 (citing River Park, 184 Ill. 2d at 309, citing Restatement (Second) of

Judgments § 24 (1982)). Courts shall find identical causes of action even if there is not a

substantial overlap of evidence needed to prove the causes of action, so long as the causes of

action arise from the same transaction. River Park, 184 Ill. 2d at 311.

¶ 34 Defendant argues that Podmajerksy was in a position to file a counterclaim 3 against

defendant in the tenants' lawsuit, and, therefore, Podmajersky could have pursued the cause

of action which plaintiff is now pursuing as Podmajersky's subrogee. In Illinois,

counterclaims are generally permissive, rather than mandatory. Kasny v. Coonen & Roth,

Ltd., 395 Ill. App. 3d 870, 873 (2009). A defendant in a lawsuit may choose to pursue its

claim against a plaintiff or codefendant by way of a counterclaim or by way of a separate

lawsuit. Kasny, 395 Ill. App. 3d at 873. However, if the defendant's claim involves the

same operative facts as the plaintiff's claim, res judicata may bar the defendant from raising

its claim in a subsequent action. Kasny, 395 Ill. App. 3d at 873. Specifically, res judicata

bars a subsequent action if successful prosecution of that action would in effect nullify the

judgment entered in the initial action. Kasny, 395 Ill. App. 3d at 873. In addition, res

judicata "extends only to claims that ' "could have been presented by the exercise of due

diligence." ' " (Emphasis in original.) Kasny, 395 Ill. App. 3d at 874 (quoting Hughey v.

Industrial Comm'n, 76 Ill. 2d 577, 582 (1979), quoting 46 Am. Jur. 2d Judgments § 417). If

a claim exists and a litigant does not discover it despite the litigant's due diligence, res

judicata does not apply. Kasny, 395 Ill. App. 3d at 874. 3 Defendant uses the term "cross-claim" in its brief to refer to a cause of action by Podmajersky, as a defendant in the tenant lawsuit, filed against defendant, which was also named as a defendant in the tenant lawsuit. The Code of Civil Procedure defines the term "counterclaim" as follows: "[a]ny claim by one or more defendants against one or more plaintiffs, or against one or more codefendants, whether in the nature of setoff, recoupment, cross claim or otherwise, and whether in tort or contract, *** may be pleaded as a cross claim in any action, and when so pleaded shall be called a counterclaim." (Emphases added.) 735 ILCS 5/2-608 (West 2010). We shall therefore refer to a potential cause of action filed by Podmajersky, as a defendant in the tenant lawsuit, against defendant, its codefendant in the tenant lawsuit, as a counterclaim.

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¶ 35 In Kasny, the plaintiff hired the defendant law firm to represent him in the dissolution of

his marriage. Kasny, 395 Ill. App. 3d at 871. The plaintiff failed to pay the defendant for its

services, and the defendant filed a lawsuit against the plaintiff in small claims court to

recover its outstanding legal fees. Kasny, 395 Ill. App. 3d at 871. The plaintiff did not

appear in the small claims matter, and the trial court entered a judgment in favor of the

defendant. Kasny, 395 Ill. App. 3d at 871. Subsequently, the plaintiff filed the lawsuit at

issue in Kasny, alleging that the defendant committed legal malpractice and breach of

contract. Kasny, 395 Ill. App. 3d at 871. The defendant filed a motion to dismiss the case,

arguing that the judgment in the small claims court barred the plaintiff's lawsuit. Kasny, 395

Ill. App. 3d at 872. On appeal, the parties agreed that there was a final judgment on the

merits and that there was an identity of parties. Kasny, 395 Ill. App. 3d at 873. The

defendant argued that the plaintiff could have discovered the legal malpractice cause of

action had he participated in the small claims lawsuit and contested his liability. Kasny, 395

Ill. App. 3d at 875. However, the Second District found small claims litigation is intended to

be expedient, and that it could "not necessarily attribute [the plaintiff's] default in the small

claims case to a lack of diligence in exploring his defenses." Kasny, 395 Ill. App. 3d at 875.

The Second District found that, even if the plaintiff had participated in the small claims

litigation and "had any inkling of malpractice, he would not necessarily have been

unreasonable for failing to rely on the prospect of small claims discovery, which he could not

conduct as a matter of right, to flesh it out." Kasny, 395 Ill. App. 3d at 875. See Ill. S. Ct. R.

287(a) (eff. Aug. 1, 1992) ("No depositions shall be taken or interrogatories or other

discovery proceeding or requests to admit be used prior to trial in small claims except by

leave of court."). "While a small claims defendant cannot use the expediency of the

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proceeding as a shield if he has truly failed to be diligent, the small claims plaintiff cannot

use it as a sword if the defendant, despite his diligence, is unable to marshal a counterclaim

in time." Kasny, 395 Ill. App. 3d at 875-76. The Second District concluded that a question

of fact existed because the plaintiff argued that he had been diligent in pursuing his legal

malpractice cause of action and the defendant argued the opposite. Kasny, 395 Ill. App. 3d at

876. As a result, the Second District determined that dismissal was improper. Kasny, 395

Ill. App. 3d at 876.

¶ 36 As with a dismissal, summary judgment is not appropriate if a question of material fact

exists. Williams, 228 Ill. 2d at 417. Although plaintiff does not argue that it was unaware of

its negligence claim at the time of the tenants lawsuit, plaintiff does argue that the damages

in the negligence cause of action were not yet finalized, and, thus, it could not have

participated in a trial on the merits. The record does not include any discovery from the

tenant lawsuit, nor does it include any orders giving leave to conduct discovery. The record

also does not include a report of proceedings or a bystander's report from the trial. As a

result, we have no way of knowing whether or not the trial court gave the parties leave to

conduct discovery. Therefore, although plaintiff certainly had an "inkling" of a negligence

cause of action, we cannot say that it was not unreasonable for Podmajersky not to pursue the

cause of action in small claims court, because Podmajersky or plaintiff, as Podmaersky's

subrogee, may not have been able to flesh out its cause of action through adequate discovery.

Kasny, 395 Ill. App. 3d at 875. If plaintiff could not have pursued its cause of action in the

tenant lawsuit and defendant argues that plaintiff could have, there is a question of fact that

should have precluded summary judgment. Williams, 228 Ill. 2d at 417; Kasny, 395 Ill. App.

3d at 876.

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¶ 37 Defendant argues that plaintiff had sufficient information during the pendency of the

tenant lawsuit to be able to adequately pursue a counterclaim against defendant. Defendant

points to a settlement agreement entered into between plaintiff and Podmajersky to settle a

lawsuit concerning a "controversy" concerning the amount plaintiff owed to Podmajersky

under the insurance policy. The settlement agreement, dated April 23, 2010, states that

plaintiff paid Podmajersky for the "actual cash value of the [subject property] repairs in the

amount of $130,843.08," and that, after Podmajersky filed the lawsuit against plaintiff in

2009, they agreed that plaintiff would pay an additional $82,500. Defendant argues that

although the settlement agreement does not disclose when the initial payment of $130,843.08

was made, "it is reasonable to assume that payment would have occurred shortly after the

engineers reported the nature and extent of the structural damage to [Shaw] in 2007, and

certainly well before final judgment was entered in the Tenant Lawsuit in October 2008."

¶ 38 We do not find this argument persuasive. Defendant provides no explanation as to why

"it is reasonable to assume" when payment occurred. Neither engineering report provides

even an estimate of the cost of repair, nor does the Shaw letter. Furthermore, Podmajersky

filed the lawsuit against plaintiff after the trial court entered judgment in the tenant lawsuit,

indicating that the damage amount had not been settled at the time the tenant lawsuit

concluded. Even if plaintiff and Podmajersky knew the cost of the repairs to the subject

property during the pendency of the tenant lawsuit, we cannot say that Podmajersky was

unreasonable in not pursuing the cause of action in small claims court when over $80,000 in

damages had yet to be finalized.

¶ 39 Finally, defendant has the burden of proving that res judicata applies. Hernandez v.

Pritikin, 2012 IL 113054, ¶ 41. This burden includes the "duty to clarify the record so as to

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clearly demonstrate [its] entitlement to the doctrine's application." (Emphasis in original.)

Hernandez, 2012 IL 113054, ¶ 52. Defendant has not obtained a report of proceedings or a

bystander's report from the tenant lawsuit and, thus, the record is far from clear as to what

occurred in the tenant lawsuit. We do not know whether the trial court would have allowed

discovery or under what circumstances the trial court entered judgment in defendant's favor.

The trial court may have found that defendant caused the damage but that defendant did not

owe a duty to the tenants, or that the tenants did not prove their damages, which are very

different from the damages claimed by plaintiff. Therefore, we cannot find that defendants

have carried their burden in proving that the causes of action were identical.

¶ 40 C. Identity of Parties or Their Privies

¶ 41 The third requirement of res judicata is an identity of parties, or their privies. For

purposes of res judicata, "[p]rivity is said to exist between ' "parties who adequately

represent the same legal interests." ' " People ex rel. Burris v. Progressive Land Developers,

Inc., 151 Ill. 2d 285, 296 (1992) (quoting Hartke v. Chicago Board of Election

Commissioners, 651 F. Supp. 86, 90 (N.D. Ill. 1986), quoting Donovan v. Estate of

Fitzsimmons, 778 F.2d 298, 301 (7th Cir. 1985)). "It is the identity of interest that controls in

determining privity, not the nominal identity of the parties [citation]." Burris, 151 Ill. 2d at

296.

¶ 42 Plaintiff alleges that it is the bona fide owner of the cause of action set forth in its

complaint, by virtue of having made payments "to or on behalf of" Podmajersky, pursuant to

its insurance policy. Defendant does not dispute this point. Plaintiff, as Podmajersky's

subrogee, has "stepped into Podmajersky's shoes" and has no greater rights than

Podmajersky. Reich v. Tharp, 167 Ill. App. 3d 496, 501 (1987). As a result, plaintiff cannot

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claim that its lack of knowledge of the tenants' lawsuit shields it from res judicata, because

doing so would afford plaintiff greater rights than Podmajersky.

¶ 43 Defendant argues that the relevant issue is whether the tenants are in privity with

Podmajersky because, if they are, plaintiff, as Podmajersky's subrogee, would also be in

privity with the tenants. Defendant relies on Agolf, 409 Ill. App. 3d 211, to argue that the

tenants are in privity with Podmajersky. In Agolf, the plaintiff purchased a shopping center

and it negotiated leases to various entities for space within the shopping center, including a

lease to a third party entity that operated a health club out of the leased space. Agolf, 409 Ill.

App. 3d at 212. The third party's lease commenced in 1997 and included options to renew

until August 2016. Agolf, 409 Ill. App. 3d at 212. In 2002, the defendant, a municipal

corporation, announced that it would be implementing a tax increment financing (TIF)

district as part of a redevelopment project. Agolf, 409 Ill. App. 3d at 212. This plan targeted

specific property in Arlington Heights, which included the property on which the shopping

center sat. Agolf, 409 Ill. App. 3d at 212. The defendant designated and implemented the

TIF district via ordinance. Agolf, 409 Ill. App. 3d at 212.

¶ 44 In 2002, the third party filed a lawsuit against the defendant seeking an injunction and

declaratory judgment prohibiting the defendant from condemning the shopping center

property pursuant to the Tax Increment Allocation Redevelopment Act (65 ILCS 5/11-74.4-1

et seq. (West 2002)), a declaration that the designation of the redevelopment area was

invalid, a declaration that the shopping center should not be included in the redevelopment

project, and damages. Agolf, 409 Ill. App. 3d at 212-13. The third party filed two amended

complaints, additionally alleging that the redevelopment area did not meet the requirements

of a TIF plan, that the defendant failed to demonstrate that the project area was not subject to

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growth, and that the defendant's plan was improper. Agolf, 409 Ill. App. 3d at 213. The

lawsuit proceeded to trial in 2006, and the trial court determined that the third party failed to

meet its burden and that the TIF ordinance was proper. Agolf, 409 Ill. App. 3d at 213. The

third party appealed, and this court affirmed. Agolf, 409 Ill. App. 3d at 214. The third party

then petitioned our Illinois Supreme Court for review of the lawsuit, but the supreme court

denied the request for leave to appeal. Agolf, 409 Ill. App. 3d at 214.

¶ 45 In 2006, while the third party's lawsuit was pending, the plaintiff filed a lawsuit, seeking

an injunction against the defendant to prevent it from implementing the TIF district and a

declaratory judgment that the defendant's plan violated the Tax Increment Allocation

Redevelopment Act (65 ILCS 5/11-74.4-1 et seq. (West 2002)). Agolf, 409 Ill. App. 3d at

215. The trial court stayed the plaintiff's litigation as a result of the pendency of the third

party's lawsuit against the defendant. Agolf, 409 Ill. App. 3d at 215. Following the

resolution of the third party's lawsuit, which found that the TIF district was valid, the

defendant filed a motion for summary judgment on the ground of res judicata, and the trial

court granted the motion. Agolf, 409 Ill. App. 3d at 215.

¶ 46 On appeal, the plaintiff conceded that the first two elements of res judicata had been met,

but argued that there was no identity of parties because it was the third party's landlord, and,

therefore, the third party's interests in the TIF litigation was not the same as the plaintiff's

interests. Agolf, 409 Ill. App. 3d at 219-20. This court found that privity existed between the

landlord plaintiff and the tenant third party. Agolf, 409 Ill. App. 3d at 220-21. Both the

plaintiff and the third party sought the same relief in their lawsuits against the defendant–

injunctive relief and a declaratory judgment preventing the defendant from incorporating the

shopping center in its redevelopment plan. Agolf, 409 Ill. App. 3d at 221. We next found

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that the third party adequately represented the plaintiff's interest because the third party filed

its lawsuit "immediately after [the] defendant enacted the ordinance establishing the TIF

district in July 2002," and because the third party pursued the litigation to a trial, at which 14

witnesses testified, to an appeal before this court, and, finally, to our Illinois Supreme Court,

"thereby exhausting its judicial options—all in an effort to save [the] plaintiff's [shopping

center]." Agolf, 409 Ill. App. 3d at 221. Furthermore, the plaintiff "undoubtedly" knew

about the third party's lawsuit from its inception and "knew the contents of its legal assertions

against [the] defendant." Agolf, 409 Ill. App. 3d at 221. The plaintiff's president and

manager testified at the third party's trial against the defendant. Agolf, 409 Ill. App. 3d at

221. Her testimony included a statement that the plaintiff's lawsuit, "just as [the third party's]

suit against [the] defendant, sought to declare the TIF district invalid." Agolf, 409 Ill. App.

3d at 221. We therefore found that the plaintiff and the third party shared the same legal

interest regarding the shopping center "and its fate under [the] defendant's TIF

redevelopment project," and that the third party "adequately represented that shared interest

in its suit against [the] defendant." Agolf, 409 Ill. App. 3d at 221.

¶ 47 We find that Agolf is factually distinguishable from the case at bar. In Agolf, we found

that the tenant third party was in privity with the landlord plaintiff because both parties filed

a lawsuit against the defendant seeking the exact same relief, injunctive relief and a

declaratory judgment preventing the defendant from incorporating the shopping center in its

redevelopment plan, concerning the exact same property, the shopping center. Agolf, 409 Ill.

App. 3d at 220-21. The third party pursued its litigation over the course of seven years, all

the way to a petition for leave to appeal before the Illinois Supreme Court. Agolf, 409 Ill.

App. 3d at 221. These facts are not present in the case at bar. Although both the tenants'

19 No. 1-13-1734

lawsuit and plaintiff's lawsuit concern damage to the subject property, the parties sought very

different relief. The tenants filed a pro se complaint in a small claims court to recover

$9,912.38 resulting from their "losses and damages." Parties do not engage in discovery

proceedings in small claims cases unless the trial court gives leave to do so. Ill. S. Ct. R.

287(a) (eff. Aug. 1, 1992). The tenants named Podmajersky, plaintiff's subrogor, as a

defendant in their pro se lawsuit, indicating that the tenants believed that Podmajersky was

liable to them. Conversely, plaintiff, as subrogee of Podmajersky, filed its lawsuit in the law

division of the circuit court of Cook County to recover $218,343.08, resulting from damage

to the subject property and lost rent. Plaintiff was represented by counsel and engaged in

discovery proceedings. Unlike in Agolf, the parties engaged in very different types of actions

and sought different relief. In fact, the tenants initially sought relief from Podmajersky, thus

indicating that the tenants were not representing Podmajersky's interests. See Burris, 151 Ill.

2d at 296 ("[i]t is the identity of interest that controls in determining privity, not the nominal

identity of the parties").

¶ 48 Our case law indicates that defendant gives too broad a definition to privity when it

argues that the tenants are in privity with Podmajersky as a result of the landlord-tenant

relationship. In Mount Mansfield Insurance Group, Inc. v. American International Group,

Inc., 372 Ill. App. 3d 388 (2007), this court examined the identity of parties requirement of

res judicata. In Mount Mansfield, the plaintiff was a wholly owned subsidiary of a holding

company, and it was established "to create a captive insurance company for workers'

compensation claims." Mount Mansfield, 372 Ill. App. 3d at 389. The defendant was

responsible for issuing insurance policies to the holding company's shareholder companies

and providing them with claims handling services. Mount Mansfield, 372 Ill. App. 3d at 389.

20 No. 1-13-1734

As the " 'captive insurer,' " the plaintiff provided reinsurance to the defendant to reimburse it

for losses. Mount Mansfield, 372 Ill. App. 3d at 390. In 1997, the holding company and its

shareholders filed a lawsuit against the defendant, alleging that the defendant's wrongful

conduct "caused an increase in their insurance premiums, a need to reimburse [the plaintiff]

for its losses, and an increase in the cost of future workers' compensation insurance." Mount

Mansfield, 372 Ill. App. 3d at 390. The plaintiff was not a party to this lawsuit because it

was in rehabilitation and its board of directors was allegedly enjoined from transacting

business, including authorizing lawsuits filed in its name. Mount Mansfield, 372 Ill. App. 3d

at 390. In 2005, after the holding company's lawsuit had been dismissed, the plaintiff filed a

lawsuit against the defendant, alleging that the defendant improperly handled workers'

compensation claims, inflated the value assigned to its reserve requirements, and forced it to

defend itself in an unnecessary rehabilitation. Mount Mansfield, 372 Ill. App. 3d at 391. The

defendant filed a motion to dismiss pursuant to section 2-619 of the Code of Civil Procedure,

arguing that the plaintiff's lawsuit was barred by res judicata, and the trial court dismissed

the lawsuit with prejudice. Mount Mansfield, 372 Ill. App. 3d at 392.

¶ 49 On appeal, the plaintiff argued that it was not in privity with the holding company during

the holding company's lawsuit against the defendant. Mount Mansfield, 372 Ill. App. 3d at

393. The defendant argued that the plaintiff was in privity with the holding company as a

result of the fact that the plaintiff was a wholly owned subsidiary of the holding company.

Mount Mansfield, 372 Ill. App. 3d at 393. We found that "[t]his argument oversimplifies and

'glosses over' the layers of corporate structure here." Mount Mansfield, 372 Ill. App. 3d at

393. For example, "a shareholder of a corporation has no personal or individual right to

pursue an action against third parties for damages resulting indirectly to the shareholder

21 No. 1-13-1734

because of an injury to the corporation." Mount Mansfield, 372 Ill. App. 3d at 393.

Shareholders may file a derivative action on behalf of the corporation, but they must allege

and prove an equitable basis for such intervention. Mount Mansfield, 372 Ill. App. 3d at 393.

Therefore, in Mount Mansfield, we found that the holding company, as the plaintiff's sole

shareholder, "had no right to represent the interests of its subsidiary unless it was able to

pursue a derivative action on its behalf." Mount Mansfield, 372 Ill. App. 3d at 393. We

found that the holding company "pursued individual rather than derivative rights" and

therefore did not adequately represent the interests of the plaintiff in the original lawsuit.

Mount Mansfield, 372 Ill. App. 3d at 394.

¶ 50 Although the holding company and the plaintiff had a corporate relationship and both

lawsuits arose from the defendant's handling of workers' compensation claims, we found that

res judicata did not apply because the parties were not in privity with one another. Mount

Mansfield, 372 Ill. App. 3d at 395. We find Mount Mansfield's analysis of privity relevant to

determining the relationship of the parties in the case at bar. Both the tenants' lawsuit and

plaintiff's lawsuit arise from the damage caused to the subject property by defendant.

Although the tenants have a legal relationship with Podmajersky, that of landlord-tenant, to

state that such relationship is enough to establish privity oversimplifies the relationship. Like

in Mount Mansfield, the rights pursued by the tenants in their lawsuit were distinct and

different from the rights that plaintiff is pursuing in its cause of action.

¶ 51 This court's decision in Oshana v. FCL Builders, Inc., 2013 IL App (1st) 120851, is also

instructive. In Oshana, an ironworker filed a negligence lawsuit against a general contractor

and a subcontractor. Oshana, 2013 IL App (1st) 120851, ¶ 4. The ironworker was employed

by an ironworking company that had been subcontracted by another subcontractor to perform

22 No. 1-13-1734

steel erection for a construction project. Oshana, 2013 IL App (1st) 120851, ¶ 4. The

general contractor filed a third-party complaint for contribution against the ironworker's

employer and a counterclaim for contribution against the subcontractor. Oshana, 2013 IL

App (1st) 120851, ¶ 4. The general contractor's contract with the subcontractor included a

requirement that the subcontractor obtain a certain amount of general liability insurance,

which would cover the subcontractor, the subcontractor's employees, and the general

contractor. Oshana, 2013 IL App (1st) 120851, ¶ 5. Any subcontractors hired by the

subcontractor were also required to maintain the same level of insurance and include the

general contractor in the policy as an additional insured. Oshana, 2013 IL App (1st) 120851,

¶ 5. The general contractor requested that the insurer who provided general liability

insurance to the iron worker's employer provide it with a defense and indemnification in the

negligence lawsuit. Oshana, 2013 IL App (1st) 120851, ¶ 5. The insurer declined, stating

that the general contractor was not covered by the employer's policy. Oshana, 2013 IL App

(1st) 120851, ¶ 5. The insurer filed a declaratory judgment action, requesting a judgment that

it was not required to defend and indemnify the general contractor in the negligence lawsuit.

Oshana, 2013 IL App (1st) 120851, ¶ 6. The subcontractor was not a party to the declaratory

judgment action. Oshana, 2013 IL App (1st) 120851, ¶ 6. The trial court found that the

general contractor was not insured under the employer's policy and granted summary

judgment to the employer. Oshana, 2013 IL App (1st) 120851, ¶ 6. In the negligence

lawsuit, the subcontractor filed a motion for summary judgment, arguing that it did not owe a

duty to the ironworker. Oshana, 2013 IL App (1st) 120851, ¶ 7. The trial court granted the

subcontractor's motion. Oshana, 2013 IL App (1st) 120851, ¶ 7. Subsequently, in the

negligence lawsuit, the general contractor amended its complaint against the subcontractor.

23 No. 1-13-1734

Oshana, 2013 IL App (1st) 120851, ¶ 9. The general contractor alleged that the

subcontractor failed to require that the employer obtain insurance covering the general

contractor, as required by the contract between the general contractor and the subcontractor.

Oshana, 2013 IL App (1st) 120851, ¶ 9. The subcontractor filed a motion to dismiss the

amended complaint on the ground of res judicata, alleging that both the declaratory judgment

action by the insurer and the summary judgment in the subcontractor's favor barred recovery

for the general contractor's breach of contract cause of action. Oshana, 2013 IL App (1st)

120851, ¶ 10. The trial court granted the motion to dismiss, but did not specify which

judgment, the declaratory judgment in favor of the insurer or the summary judgment in favor

of the subcontractor, it based its ruling on. Oshana, 2013 IL App (1st) 120851, ¶ 11.

¶ 52 On appeal, the subcontractor argued that, even though it was not a party to the

declaratory judgment action, it was in privity with the insurer for that cause of action because

the subcontractor was an additional insured on the policy between the insurer and the

employer, and because the insurer had provided a defense and indemnity to the

subcontractor. Oshana, 2013 IL App (1st) 120851, ¶ 22. The subcontractor further argued

that the insurer represented its interests in the declaratory judgment action, and that it

benefited from the general contractor not being an insured under the policy, because the

subcontractor no longer had to share the policy limits with the general contractor. Oshana,

2013 IL App (1st) 120851, ¶ 22. We found that although the subcontractor was in privity

with the insurer in the negligence lawsuit, as a result of the insurer-insured relationship, the

subcontractor was not in privity with the insurer in the declaratory judgment action because

the insurer did not represent its interests. Oshana, 2013 IL App (1st) 120851, ¶ 26. The

insurer had an interest in the declaratory judgment action to defeat the general contractor's

24 No. 1-13-1734

claim for defense and indemnification under the employer's policy, and we found that this

interest was in conflict with the subcontractor's interest, because the subcontractor was

allegedly contractually obligated to require the employer to provide insurance coverage to the

general contractor. Oshana, 2013 IL App (1st) 120851, ¶ 26. The insurer "did not ***

undertake to show that [the subcontractor], as [the insurer's] additional insured, was not liable

for any failure to procure insurance coverage for [the general contractor]." Oshana, 2013 IL

App (1st) 120851, ¶ 26.

¶ 53 The lack of aligned interests is even more stark in the case at bar. Defendant argues that

plaintiff is in privity with the tenants because (1) plaintiff is in privity with Podmajersky

because of his subrogation argument, and (2) Podmajersky is in privity with the tenants as a

result of its landlord-tenant relationship. However, in the tenant lawsuit, the tenants named

Podmajersky as a defendant. Even though the trial court dismissed Podmajersky from the

tenant lawsuit prior to it proceeding to trial, we cannot find that tenants could represent the

interest of a party they believed was liable to them for damages. Therefore, the tenants could

not adequately have represented plaintiff's rights in the lawsuit, and the tenants could not be

in privity with plaintiff. See Burris, 151 Ill. 2d at 296 (identity of interests controls when

determining privity).

¶ 54 CONCLUSION

¶ 55 Plaintiff could not have adequately pursued its cause of action during the pendency of the

tenant lawsuit in a small claims court, and plaintiff was not in privity with the tenants. Since

defendants cannot meet the second and third requirements of res judicata, plaintiff's lawsuit

must be allowed to proceed.

¶ 56 Reversed and remanded.