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Docket No. 88116-Agenda 14-March 2000.

DU PAGE FORKLIFT SERVICE, INC., Appellee, v.

MATERIAL HANDLING SERVICES, INC., Appellant.

Opinion filed January 29, 2001.

JUSTICE MILLER delivered the opinion of the court:

The plaintiff, Du Page Forklift Service, Inc., brought thepresent action in the circuit court of Cook County to recoverdamages from the defendant, Material Handling Services, Inc., forits alleged tortious interference with contractual and businessrelations. The circuit judge dismissed two of the three counts ofthe plaintiff's complaint, concluding that they were barred bycollateral estoppel. The appellate court reversed, holding that theplaintiff was not precluded from bringing the claims. We allowedthe defendant's petition for leave to appeal (177 Ill. 2d R. 315(a)),and we now reverse the judgment of the appellate court and affirmthe judgment of the circuit court.

Du Page Forklift Service, Inc. (Du Page Forklift), is an Illinoiscorporation that sells and services forklifts. In 1982, Du PageForklift entered into a sales and service agreement with MachineryDistribution, Inc. (MDI), a Texas-based corporation that suppliesforklifts. Under the agreement, Du Page Forklift was to sell andservice Mitsubishi forklifts and related products in what wastermed an "area of primary responsibility" that consisted ofDu Page County and, later, also of Kane County. In 1992, MDIassigned its rights and responsibilities under the agreement toMitsubishi Caterpillar Forklift America, Inc. (MCFA), also aTexas-based forklift supplier. In 1994, MCFA terminated itsagreement with the plaintiff and entered into a distribution, sales,and services agreement with one of Du Page Forklift'scompetitors, Material Handling Services, Inc. (MHS), for MHS tosell and service Mitsubishi products in Du Page and Kanecounties.

In December 1994, the plaintiff filed suit against both MCFAand MDI in federal court in the Northern District of Illinois. CountI of the plaintiff's four-count complaint alleged breach of contract,contending that the defendants violated an alleged exclusivityprovision in the agreement by appointing MHS to the sameterritory served by Du Page Forklift. Count II of the federalcomplaint asserted that the plaintiff was a franchisee under anIllinois statute, the Franchise Disclosure Act of 1987 (815 ILCS705/1 through 44 (West 1996)), and alleged that MCFA violatedthe Act by terminating its agreement with Du Page Forkliftwithout good cause. Count III of the complaint alleged tortiousinterference with the plaintiff's business expectancy, and count IVsought a declaratory judgment that Du Page Forklift owed nomoney to MCFA. MCFA filed its own suit against Du PageForklift, alleging that Du Page Forklift owed MCFA a total ofabout $250,000 on a promissory note and for trucks and otherequipment Du Page Forklift had received from MCFA. Thefederal court consolidated the two actions.

MCFA filed a motion to dismiss Du Page Forklift's actionpursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure,arguing that the plaintiff failed to state any claims on which reliefcould be granted. In March 1995, the district court granted in partand denied in part MCFA's motion. The district court dismissedcount II, which alleged a violation of the Franchise Disclosure Actof 1987. The court found that the plaintiff failed to sufficientlyallege that it was a franchisee within the meaning of the Act. Thecourt dismissed count IV, which sought a declaratory judgmentthat Du Page Forklift did not owe any money to MCFA. The courtalso dismissed a portion of count I, not relevant here, but deniedthe motion with respect to the remainder of that count, the breachof contract claim based on an exclusivity agreement, and deniedthe motion to dismiss count III, alleging tortious interference. Thecourt's March 1995 order did not specify whether the dismissalswere with or without prejudice.

In September 1995, Du Page Forklift filed a motion seekingleave to amend its complaint in the federal action. The proposedamended complaint would have repleaded the dismissed counts,preserved the two remaining counts, and added two new ones; thenew counts alleged fraud and a violation of another Illinois statute,the Consumer Fraud and Deceptive Business Practices Act (815ILCS 505/1 through 12 (West 1996)) The district judge deniedDu Page Forklift's motion to amend as untimely. The plaintifflater asked the court to amend its March 1995 order to provide thatthe dismissals were without prejudice. The court denied thatmotion as well. In denying that request, the district judge took noteof the plaintiff's concern that dismissal with prejudice wouldeffectively preclude it from relitigating the same claims in anotherforum. The court further observed that the plaintiff was free topursue in another forum the fraud claims it had attempted to raisein the amended complaint.

MCFA filed two motions for summary judgment, with oneaddressed to Du Page Forklift's action and the other involving itsown. In January 1996, the federal court granted MCFA's motionfor summary judgment on the counts that remained in Du PageForklift's suit: count I, alleging breach of a purported exclusivityclause in the contract between Du Page Forklift and MCFA, andon parts of count III, alleging tortious interference with Du PageForklift's business expectancy. With respect to count I, the districtcourt concluded that the agreement between Du Page Forklift andMCFA did not create a grant of exclusivity. The district court alsogranted in part MCFA's motion for summary judgment regardingMCFA's separate action, seeking recovery on the promissory noteand for other claims. Du Page Forklift and MCFA settled thefederal lawsuits in June 1996, when they entered into a stipulationto dismiss both actions with prejudice. The amount of thesettlement agreement was not disclosed.

The plaintiff commenced the present action in April 1997 byfiling a three-count complaint against MHS in the circuit court ofCook County. Count I of the complaint alleged that MHStortiously induced MCFA to breach the purported exclusivityprovision in Du Page Forklift's contract with MCFA. Count IIalleged that MHS tortiously induced MCFA to terminate thecontract, in violation of the Franchise Disclosure Act of 1987 (815ILCS 705/1 through 44 (West 1996)). Count III, which is not atissue in this appeal, alleged tortious interference with theplaintiff's customers.

In September 1997, MHS moved for summary judgment oncounts I and II, contending that the doctrine of collateral estoppelbarred relitigation of those claims in state court because they weresubstantially the same as the claims determined in counts I and IIof the plaintiff's earlier federal action. The circuit judge agreedwith MHS and granted the defendant summary judgment oncounts I and II. The trial judge characterized the priordeterminations as involving mixed questions of law and fact, andthe judge thus found it unnecessary to follow precedent cited bythe plaintiff that refused to give collateral estoppel effect todeterminations of law. The judge also provided an alternativeground for her ruling with respect to count II, the franchise claim:the judge concluded that the Franchise Disclosure Act does notallow a private right of action against a third party for inducing aviolation of the statute. The judge entered a finding under SupremeCourt Rule 304(a) permitting the plaintiff to take an immediateappeal from the disposition of counts I and II (155 Ill. 2d R.304(a)); proceedings on the remaining count, count III, allegingtortious interference with the plaintiff's customers, were stayedpending the appeal.

The appellate court reversed, holding that the circuit courterred in granting MHS summary judgment on counts I and II. Theappellate court reasoned that the earlier determinations in thefederal action involved issues of law rather than of fact, and theappellate court believed that collateral estoppel may not be appliedto determinations of law. The court also found that the matterraised in count II of the present complaint was not resolved in theearlier federal action and therefore was not barred by collateralestoppel in any event. No. 1-98-0783 (unpublished order underSupreme Court Rule 23). We allowed the defendant's petition forleave to appeal (177 Ill. 2d R. 315(a)), and we now reverse thejudgment of the appellate court.

I

Collateral estoppel is an equitable doctrine. When properlyapplied, collateral estoppel, also referred to as issue preclusion,promotes fairness and judicial economy by preventing therelitigation of issues that have already been resolved in earlieractions. Kessinger v. Grefco, Inc., 173 Ill. 2d 447, 460 (1996).When invoked in subsequent litigation by parties who were notinvolved in the earlier proceedings, collateral estoppel precludesa plaintiff from relitigating issues by switching adversaries, and itthus provides the plaintiff with an incentive to join all defendantsin the first action. In re Owens, 125 Ill. 2d 390, 398 (1988).Collateral estoppel may be applied when the issue decided in theprior adjudication is identical with the one presented in the currentaction, there was a final judgment on the merits in the prioradjudication, and the party against whom estoppel is asserted wasa party to, or in privity with a party to, the prior adjudication.Illinois State Chamber of Commerce v. Pollution Control Board,78 Ill. 2d 1, 7 (1979).

The appellate court held that the circuit court erred in grantingMHS's motion for summary judgment on counts I and II. Theappellate court found that the issues resolved in the earlier federalaction were ones of law, and the court believed that collateralestoppel may apply only to determinations of fact, and not to thoseof law. The plaintiff urges us to adopt this rationale. In support ofits position, the plaintiff cites other appellate court decisions thatsimilarly appear to limit application of collateral estoppel tofactual determinations. See Nokomis Quarry Co. v. Department ofRevenue, 295 Ill. App. 3d 264, 267 (1998); City of Chicago v.Chicago Fiber Optic Corp., 287 Ill. 3d 566, 576 (1997); Wright v.Chicago Municipal Employees Credit Union, 265 Ill. App. 3d1110, 1115 (1994); Oberman v. Byrne, 112 Ill. App. 3d 155, 160(1983).

The defendant argues that collateral estoppel should applyequally to questions of law and findings of fact and asserts that noreason exists for distinguishing between the two for purposes ofapplying the doctrine. The defendant points to decisions by theUnited States Supreme Court and the Illinois appellate court, andto other authorities, as well, that have stated that collateralestoppel may apply both to determinations of law and todeterminations of fact. See Montana v. United States, 440 U.S.147, 153, 59 L. Ed. 2d 210, 217, 99 S. Ct. 970, 973 (1979);Herriford v. Boyles, 193 Ill. App. 3d 947, 954 (1990); Morris v.Union Oil Co., 96 Ill. App. 3d 148, 153 (1981); see also Rekhi v.Wildwood Industries, Inc., 61 F.3d 1313, 1317 (7th Cir. 1995)(noting split among Illinois appellate court decisions on subjectand predicting that this court would follow general rule and applycollateral estoppel equally to rulings of law and findings of fact).Thus, the United States Supreme Court has explained, "Under thejudicially developed doctrine of collateral estoppel, once a courthas decided an issue of fact or law necessary to its judgment, thatdecision is conclusive in a subsequent suit based on a differentcause of action involving a party to the prior litigation." UnitedStates v. Mendoza, 464 U.S. 154, 158, 78 L. Ed. 2d 379, 383, 104S. Ct. 568, 571 (1984).

The Restatement (Second) of Judgments similarly states thatcollateral estoppel may apply to both issues of fact and law.Section 27 of the Restatement provides:

"When an issue of fact or law is actually litigated anddetermined by a valid and final judgment, and thedetermination is essential to the judgment, thedetermination is conclusive in a subsequent actionbetween the parties, whether on the same or a differentclaim." Restatement (Second) of Judgments