Martino v. McDonald’s System, Inc.

Brief Fact Summary.

Man that entered into a consent judgement with Defendant years earlier brings suit against Defendant again. Defendant attempts to bar the suit under FRCP 13(a) governing compulsory counterclaims and res judicata

Synopsis of Rule of Law.

A consent judgement has res judicata effect barring relitigation between parties.

Facts.

Plaintiff Martino and Defendant McDonald’s entered into a franchise and lease agreement. The agreement contained a provision that prevented Martino or his immediate family from acquiring a stake in a competing self-service food business without the consent of McDonald’s and Financial Realty Interstate Corporation (FRIC). Year later Martino’s son bought a Burger Chef franchise in Kansas which Martino financed. McDonald’s and FRIC brought suit against Martino and his three brothers in Iowa under diversity jurisdiction, alleging Martino violated the contract. The case resulted in a consent judgement that included both findings of fact and law. Martino sued McDonald’s in this action alleging the provision limiting acquisition of a competing franchise violated the Sherman Act. Martino sued for damages for the amount he would have made as a McDonald’s franchise owner. McDonald’s contends that there are two ways Martino’s suit can be barred: (1) under FRCP 13(a) for compulsory counterclaims and (2) res judicata.

Issue.

Does a consent judgement have res judicata effect?

Held.

Yes, a consent judgement has res judicata effect preventing relitigation between the parties. Therefore the judgement of the district court is affirmed.

Discussion.

1. A judgement on the merits is an absolute bar to relitigation between the parties to matters offered during the suit but also to every admissible matter that might have been offered.
2. The consent judgement is an adjudication on the merits because there were finding of fact and law therefore warranting res judicata effect.
3. Martino’s argument that because the antitrust issue can be a defense and a ground for recovery that the current action constitutes a separate cause of action for res judicata purposes and may be relitigated is a good one.
4. It is allowed that when the facts form a basis for both a defense and a counterclaim that the defendant is not barred from relying on those same facts in an action brought by him later on.
5. However, precedent and policy demand that res judicata bar the counterclaim when its adjudication would extinguish rights established in a prior action.
6. McDonald’s determined and repurchased Martino’s franchise in reliance on the court’s prior judgement, so to allow the issue to be relitigated would extinguish the rights given to McDonald’s during the prior action, which is contrary to precedent and policy.
7. Therefore the judgement of the district court is affirmed.