ARROW GEAR COMPANY and PRECISION BRAND PRODUCTS, INC. v. Downers Grove Sanitary District

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 09-1509, 09-4030
ARROW GEAR COMPANY and
PRECISION BRAND PRODUCTS, INC.,
Plaintiffs-Appellants,
v.
DOWNERS GROVE SANITARY DISTRICT, et al.,
Defendants-Appellees.
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
Nos. 08 CV 4895, 08 CV 5549—John W. Darrah, Judge.
ARGUED OCTOBER 1, 2010—DECIDED DECEMBER 10, 2010
Before POSNER, KANNE, and SYKES, Circuit Judges.
POSNER, Circuit Judge. In 2008 the appellees, Arrow
and Precision, brought separate suits under section 113(b)
of the Comprehensive Environmental Response, Com-
pensation, and Liability Act (CERCLA), 42 U.S.C. § 9613(b),
seeking contribution—seeking to shift some of the costs
that Arrow and Precision had incurred, as a result of
having been found liable for groundwater contamina-

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2 Nos. 09-1509, 09-4030
tion, to other polluters of the same site. Those other
polluters are the defendants in Arrow’s and Precision’s
suits. The district court dismissed the suits as barred
by res judicata. We have consolidated the appeals, but
discuss only Arrow’s appeal because Precision’s presents
no additional issues. We address issues of appellate and
trial-court jurisdiction, res judicata, and interpretation
of settlement agreements.
Along with a number of other companies, Arrow oper-
ated commercial facilities in Ellsworth Industrial Park, in
Downers Grove, Illinois, that used industrial solvents.
The solvents leaked into groundwater and contaminated
adjacent residential areas. The Environmental Protec-
tion Agency began to investigate the contamination in
2002, and later filed an enforcement action. It is con-
tinuing to investigate, and, depending on what the in-
vestigation reveals, may seek additional relief.
In 2004 a class action, Muniz v. Rexnord Corp., was
brought in federal district court on behalf of residents of
the contaminated area against a number of the polluters,
including Arrow, on a variety of grounds. The suit
asked for damages, mainly for impairment of property
values. The parties agreed in 2006 to a settlement of
(in round numbers) $16 million. The defendants had
then to allocate the expense among them, and they did
so in a series of agreements. Each agreement, so far as
relates to Arrow’s present suit (which, remember, is a
suit for contribution by one polluter against other pol-
luters), releases in the broadest possible terms any claims
for contribution by any defendant against any other

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Nos. 09-1509, 09-4030 3
defendant that had been or could have been made “from
the beginning of time.” But this sweeping release
is qualified: the agreement does “not release any claims
other than the specified claims and do[es] not release
claims that may arise in other litigation or in other
contexts related to alleged contamination at the Ellsworth
Industrial Park.” (We are quoting from one of the agree-
ments, but the others are worded similarly.)
After the settlement agreements were signed (in one
instance before), the district court dismissed the Muniz
suit with prejudice. The court did not reserve jurisdiction
to resolve disputes arising out of the settlement agree-
ments—the order of dismissal does not so much as men-
tion them. The defendants in Arrow’s suit argue that the
dismissal, being with prejudice, is res judicata in the
present suit because this suit arises out of the same facts
as Muniz—the groundwater contamination caused by
the leakage of industrial solvents at Ellsworth Industrial
Park.
The issue of appellate jurisdiction arises from the fact
that the district judge did not dismiss Arrow’s suit
against all the polluters that it sued. The suit remained
pending against two of them. So the dismissal was not a
final judgment, appealable under 28 U.S.C. § 1291. Arrow
could have asked the judge to enter a final judgment
under Rule 54(b) of the civil rules, which permits a
district judge, upon finding no “just reason” to delay
an appeal, to enter a final judgment—which is then
appealable under section 1291—with respect to one or
more, but fewer than all, claims or parties. But the

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4 Nos. 09-1509, 09-4030
judge was not asked to enter a Rule 54(b) judgment
and did not. Instead Arrow took a voluntary dismissal,
without prejudice, of its pending claims against the two
remaining defendants, thus ending—for the time being
at any rate—the litigation in the district court, and then
appealed the involuntary dismissal of its claims against
the remaining firms that it had sued. As the defendants
who were not dismissed (and are thus the appellees in
Arrow’s appeal) point out, Arrow’s maneuver, if al-
lowed, would prevent the entirety of the contested
issues, involving all the parties, from being resolved in
a single appeal; it would exemplify piecemeal ap-
pealing, which is disfavored in the federal court system.
When a claim is dismissed without prejudice, the
plaintiff can refile it, and if that were done here—if
after the decision of this appeal the plaintiff filed new
claims against the dropped defendants, as it could do
because its dismissal of them was without prejudice—
it would be as if interlocutory appeals were freely per-
missible, with no need to obtain an order under Rule 54(b).
We have held, therefore, that a decision is not final for
purposes of appellate jurisdiction if the court rendering
it has dismissed one or more of the plaintiff’s claims (or
one or more of the defendants) with leave to refile. Taylor-
Holmes v. Office of Cook County Public Guardian, 503 F.3d
607, 609-10 (7th Cir. 2007); ITOFCA, Inc. v. Megatrans
Logistics, Inc., 235 F.3d 360, 363-65 (7th Cir. 2000); West v.
Macht, 197 F.3d 1185, 1189-90 (7th Cir. 1999). This is the
rule in most though not all of the other courts of appeals
to have considered the issue. Compare Rabbi Jacob Joseph
School v. Province of Mendoza, 425 F.3d 207, 210-11 (2d Cir.

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Nos. 09-1509, 09-4030 5
2005); LNC Investments LLC v. Republic Nicaragua, 396 F.3d
342, 346 (3d Cir. 2005); Swope v. Columbian Chemicals Co.,
281 F.3d 185, 192-93 (5th Cir. 2002); Jackson v. Volvo
Trucks North America, Inc., 462 F.3d 1234, 1238 (10th Cir.
2006), and Mesa v. United States, 61 F.3d 20, 22 (11th
Cir. 1995), with Hope v. Klabal, 457 F.3d 784, 789-90 (8th
Cir. 2006), and James v. Price Stern Sloan, Inc., 283 F.3d
1064, 1068-70 (9th Cir. 2002).
A dismissal without prejudice doesn’t always enable a
suit to be refiled, even in a different court, and when
that is so—the litigation is over, its resolution in the
district court final—there is no objection to an im-
mediate appeal. The statute of limitations may have run,
as in Doss v. Clearwater Title Co., 551 F.3d 634, 639 (7th
Cir. 2008), or in the cases discussed in LNC Investments
LLC v. Republic Nicaragua, supra, 396 F.3d at 346. And
although dismissal for want of subject-matter jurisdic-
tion (which might be a voluntary dismissal, though
it makes no difference whether it is or not) is without
prejudice, a suit dismissed on that ground cannot be
refiled in the same court; and likewise if the basis for
dismissal (and so again a dismissal without prejudice) is
forum non conveniens, which does not extinguish the
claim but does expel it from the court in which it was
filed. Mañez v. Bridgestone Firestone North American Tire,
LLC, 533 F.3d 578, 583-84 (7th Cir. 2008). These dis-
missals are final from the standpoint of the court that
orders them, unlike the case in which dismissal with-
out prejudice of a complaint for failure to state a
claim allows the plaintiff to start over in the same court.

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6 Nos. 09-1509, 09-4030
This is a “start over” case. Arrow could refile the identi-
cal claim in the same court against the two parties that
it has dropped, and, if it did, an appeal from the final
judgment in the new case would bring up to us many of
the same issues as an appeal from a final judgment in
this case would have done had the two parties not been
dropped. So at argument we gave Arrow’s lawyer the
following choice: stand your ground and we’ll dismiss
the appeal, or convert your dismissal of the other
two defendants to dismissal with prejudice, which will
bar your refiling your claims against them. He quickly
chose the second option, committing not to refile the
suit against them, and so, because the final judgment in
the district court is now definitive, we have jurisdiction
of the appeal. India Breweries, Inc. v. Miller Brewing Co.,
612 F.3d 651, 657-58 (7th Cir. 2010); Helcher v. Dearborn
County, 595 F.3d 710, 717 (7th Cir. 2010); JTC Petroleum
Co. v. Piasa Motor Fuels, Inc., 190 F.3d 775, 776-77 (7th
Cir. 1999). Precision hadn’t dismissed any defendants,
so we had no occasion to confront its lawyer with a
similar choice.
The next issue—the jurisdiction of the district
court—arises from a misinterpretation by the district
judge and the defendants of cases concerning juris-
diction to enforce settlements of federal lawsuits. The
issue in those cases was whether a district court,
in dismissing a suit because the parties have settled, and
failing as in this case to reserve jurisdiction to resolve
issues arising from the settlement agreement, can never-
theless entertain a suit to enforce the settlement even
if there is no federal jurisdictional basis (such as diversity)

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Nos. 09-1509, 09-4030 7
separate from the basis of federal jurisdiction in the
original suit. The cases answer no, the court cannot enter-
tain the suit to enforce the settlement unless there is an
independent basis of federal jurisdiction over such a
suit. Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S.
375, 381-82 (1994); Kay v. Board of Education of City of
Chicago, 547 F.3d 736, 737 (7th Cir. 2008); Lynch, Inc. v.
Samatamason Inc., 279 F.3d 487, 489-90 (7th Cir. 2002). The
original suit may have been a federal antitrust suit, of
which the district court had jurisdiction under 28 U.S.C.
§ 1331. But if the new suit—a suit to enforce a settlement
of the antitrust suit—were between citizens of the
same state, and the law on which the new suit was
based was state contract law (a settlement is a contract)
rather than federal law, the federal court would not
have jurisdiction.
These cases are inapplicable, however, because Arrow’s
suit is based on federal law, namely the contribution
provision of CERCLA, and not on any settlement
governed by state law. The defendants’ defense to the
suit is res judicata, and the provisions of the settle-
ments that reserve Arrow’s right to sue come in as
rebuttal to that defense. The fact that Arrow could not
sue in federal court for a declaration that the settle-
ments waive the defense of res judicata (for that would
be a suit to enforce the settlements) in this suit is
irrelevant, for there is nothing to prevent a plaintiff in a
federal suit from interposing a contract governed by
state law in order to rebut a defense. The interposition
of an agreement to split claims as a riposte to a defense

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8 Nos. 09-1509, 09-4030
of res judicata is commonplace. See Muhammad v. Oliver,
547 F.3d 874, 877 (7th Cir. 2008); Norfolk Southern Corp. v.
Chevron, U.S.A., Inc., 371 F.3d 1285, 1289 (11th Cir. 2004);
Pactiv Corp. v. Dow Chemical Co., 449 F.3d 1227, 1231 (Fed.
Cir. 2006).
Coming finally to the merits, we face the adamant
insistence by the defendants that a dismissal with
prejudice bars, by principles of res judicata, a further
suit arising from the same set of facts, regardless of
what the parties intended. This is false. Litigants who
want to split a claim among different suits can do so
(subject to a qualification about to be noted). E.g., Muham-
mad v. Oliver, supra, 547 F.3d at 877; Norfolk Southern
Corp. v. Chevron, U.S.A., Inc., supra, 371 F.3d at 1289;
California v. Randtron, 284 F.3d 969, 975 (9th Cir. 2002);
Restatement (Second) of Judgments § 26(1)(a) and com-
ment a (1982); Charles A. Wright, Arthur R. Miller &
Edward H. Cooper, 18 Federal Practice and Procedure § 4415,
pp. 354-55 (2d ed. 2002). Res judicata is a defense. It can
be forfeited if not pleaded—so it can be waived expressly.
Maybe, though, there is or should be an exception. The
doctrine of res judicata serves institutional as well as
private interests—interests similar to those served by
forbidding piecemeal appeals. Both res judicata and
the final-judgment rule, along with a number of other
procedural rules, aim at forcing closely related claims to
be consolidated in a single proceeding, whether original
or appellate, in order to economize on the expenditure
of judicial resources for which litigants don’t pay.
Suppose A and B had gotten into a fight and B had spat on

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Nos. 09-1509, 09-4030 9
A, twisted his nose, pulled his hair, and kicked him in
the shin. And suppose the parties agreed that they
would not plead res judicata in any suits arising from
the fight. A sues B for assault (the spitting), then for bat-
tery to his nose, then for battery to his scalp, and then
for battery to his chin. We can assume (though we
can’t find a case) that the courts could refuse to enter-
tain the second, third, and fourth suits—rather than have
to empanel four separate juries to resolve the legal
issues arising from the fight.
But the limited release effected by the settlements in
this case was not gratuitous, as in our hypothetical case.
When the Muniz case was settled, the EPA, moving
with the majestic deliberateness characteristic of gov-
ernment agencies, was still investigating contamination
by the firms that had been defendants in that case
(which include Arrow and Precision) and was expected
to impose additional costs on them, and may continue
doing so because its investigative activities have not
concluded. Already it is seeking $1 million to reimburse
it for the cost of investigating. And because the Muniz
settlement did not address the contamination of the
class members’ water supply, the defendants in that
suit have, separately from the $16 million settlement of
the Muniz suit, agreed to connect the houses of the
class members to another water-supply system at a cost
of some $4 million.
It would have been difficult to settle all possible
claims by the cross-claiming defendants before their total
liability was determined. So claim splitting—allocation of

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10 Nos. 09-1509, 09-4030
the $16 million first, and of the additional $5 million
(which will doubtless grow) second—made sense, and
the district court should not have forbidden it. True, the
order dismissing Muniz had not mentioned the settle-
ments, and some of them had postdated the dismissal.
But as parties to the settlements the defendants were
bound by them regardless of when they were made
and whether they were mentioned in a judicial order.
Were there doubt about the scope of the settlements,
we would have to remand for further proceedings to
still that doubt. But there is no doubt that the settle-
ments confine release to claims by defendants against
one another concerning the allocation of the $16 million.
So the defendants have no defense of res judicata
to the present suits, and the judgment of the district
court is therefore reversed with instructions to reinstate
the suits.
REVERSED.
12-10-10

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