Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-16-02902/USCOURTS-ca7-16-02902-0/pdf.json

Parties Involved:
David T. Chen
Appellant
Nalco Company
Appellee
Nalco Mobotec, Inc.
Appellee

Document Text:

In the

United States Court of Appeals

For the Seventh Circuit ____________________

No. 16-2902

NALCO COMPANY,

Plaintiff-Counterdefendant-Appellee,

v.

DAVID T. CHEN,

Defendant-Counterplaintiff-Appellant,

v.

NALCO MOBOTEC, INC.,

Counterdefendant-Appellee.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 12 C 9931 — Harry D. Leinenweber, Judge.

____________________

ARGUED DECEMBER 5, 2016 — DECIDED DECEMBER 9, 2016

____________________

Before EASTERBROOK and ROVNER, Circuit Judges, and 

SHADID, District Judge.

*

 * Of the Central District of Illinois, sitting by designation.

Case: 16-2902 Document: 29 Filed: 12/09/2016 Pages: 7
2 No. 16-2902

EASTERBROOK, Circuit Judge. Nalco and David Chen conducted a joint venture to sell environmental equipment in 

China. Nalco owned 55% of the venture, Chen 40%, and a 

third party 5%. When the joint venture (Nalco Mobotec Environmental Protection Technology (Shanghai) Co., or 

NMEPT) encountered business problems, Nalco guaranteed 

a loan, which NMEPT was unable to cover. Nalco paid the 

creditor and sued Chen (under the diversity jurisdiction) for 

his 40% share of the outlay. The district court entered judgment in Nalco’s favor for more than $2 million. 2014 U.S. 

Dist. LEXIS 76207 (N.D. Ill. June 4, 2014).

Chen filed counterclaims against both Nalco and a subsidiary, Nalco Mobotec, Inc. (NMI), through which Nalco 

had made its investment in the joint venture. Chen contended that NMI had violated his rights under the agreement by 

causing the joint venture to borrow $300,000 without his approval, even though the agreement required all investors’ 

consent for borrowing money. When the joint venture did 

not repay this loan, the creditor petitioned it into bankruptcy 

under Chinese law—another violation of the agreement, 

Chen maintained. As Chen described things, the lender was 

doing Nalco’s bidding in an effort to get around a clause of 

the agreement requiring the three investors’ unanimous consent for bankruptcy proceedings. Nalco wanted to wind up

the unprofitable venture, but Chen preferred to keep it alive 

(if dormant) in order to protect its intellectual property. 

Chen’s counterclaim included 12 counts under the laws of 

both China and Illinois. The district court granted summary 

judgment against Chen on 11 of the 12, see 2015 U.S. Dist. 

LEXIS 68095 (N.D. Ill. 2015), and he soon abandoned the 

twelfth. At this point the suit was over, but no one appealed.

Case: 16-2902 Document: 29 Filed: 12/09/2016 Pages: 7
No. 16-2902 3

Chen is not reconciled to his loss, however, and filed a 

new suit, this time in China. He named as the defendant 

Mobotec LLC (Mobotec). Contending that Chen was attempting to relitigate claims already resolved in this nation, 

Nalco asked the district court to enjoin him from pursuing 

the Chinese litigation. The court issued an anti-suit injunction, 2016 U.S. Dist. LEXIS 75698 (N.D. Ill. June 10, 2016), and 

this time Chen appealed.

His principal argument is that Mobotec was not a party 

to the Illinois litigation and therefore cannot benefit from the 

Illinois judgment. That would be a questionable proposition 

even if Mobotec were a distinct entity, for federal courts no 

longer require mutuality in civil litigation. See Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979); Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313 

(1971). Having raised and lost his claims under the joint venture agreement, Chen is hard pressed to explain why he is 

entitled to another round of litigation. But then one might 

ask what skin it is off Nalco’s nose whether Chen seeks and 

gets relief against Mobotec; why would Nalco or NMI even 

have standing to protest?

Their answer, seconded by the district court, is that NMI 

and Mobotec are the same entity. Relying on documents 

from Delaware’s Secretary of State, the district judge found 

that Nalco Mobotec, Inc., first changed its organizational 

form from a corporation to a limited liability company, becoming Nalco Mobotec LLC, and then changed its name to 

Mobotec LLC as part of the sale of this business to Power 

Industrial in July 2013. Nalco retained a contractual right to 

act for Mobotec in connection with the dispute about the 

joint venture with Chen, and doubtless a duty to indemnify 

Case: 16-2902 Document: 29 Filed: 12/09/2016 Pages: 7
4 No. 16-2902

Power Industrial for any loss, which explains why this litigation proceeded as it did. The district court wrote that, because NMI and Mobotec are just different names for the 

same thing, Chen cannot avoid the consequences of his loss 

by changing the entity’s name on legal papers in China.

Chen protests that he was surprised by the district 

judge’s conclusion. Nalco had filed a lawyer’s declaration 

analyzing whether the Chinese claims overlapped those in 

Illinois, and the Delaware documents were attached to this 

declaration. Chen maintains that, when the district court 

struck this declaration on the ground that the lawyer had not 

demonstrated expertise in Chinese law, the judge disabled 

himself from relying on the attachments and made it unnecessary for Chen to discuss their significance. When the attachments played a role in the district court’s decision, Chen 

declares, he was bushwhacked.

There are two problems with this line of argument. One 

is that the judge was free to get the documents from Delaware and to take judicial notice of them, whether or not they 

had been tossed out along with the declaration to which they 

were attached. The other is that there would be no point in 

remanding for further proceedings because, in the months 

since the district court acted, Chen has not offered any reason to doubt the judge’s understanding of the corporate 

documents. Chen’s appellate brief does not contend that the 

judge was wrong in finding that NMI and Mobotec are different names for the same thing, though he has had plenty of 

time to find any flaws in the judge’s reasoning or its documentary foundation. To the contrary, Chen’s suit in China 

seeks to hold Mobotec liable for NMI’s acts relating to the 

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No. 16-2902 5

joint venture. What could be the basis for that approach, unless the two names denote one continuing business entity?

Still, Chen insists, Nalco is estopped to deny that Mobotec is a different entity. That’s because during discovery 

Nalco said that it could not produce certain documents held 

by Mobotec. Having taken that stance and won (at least, 

won an order concerning discovery) Nalco cannot reverse 

course, the argument goes. We need not consider how far 

judicial estoppel, as opposed to law of the case, governs proceedings within a single lawsuit. Cf. New Hampshire v. Maine, 

532 U.S. 742, 749–51 (2001); Astor Chauffeured Limousine Co. v. 

Runnfeldt Investment Corp., 910 F.2d 1540, 1547–48 (7th Cir. 

1990). For Chen has lifted Nalco’s statement out of context. 

Recall that NMI was sold to Power Industrial in 2013. Nalco 

told the district court that it could not get the documents—

not because Mobotec was a different entity but because it 

had a new owner, and Nalco could not rummage through its 

files at will. Nalco was inviting Chen to serve a third-party 

discovery request, which he elected not to do. Nalco was not 

representing that NMI and Mobotec are different businesses. 

Civil litigants are entitled to take inconsistent positions within a single suit, see Fed. R. Civ. P. 8(d)(3), but Nalco has not 

been inconsistent in this one.

Chen has a second line of argument against the district 

court’s injunction. One might have expected Chen to invoke 

principles of international comity and contend that the Chinese court, applying Chinese law, is the right body to ascertain whether Chen is attempting inappropriate litigation. For 

all we know, China may not use the law of claim or issue 

preclusion at all (these are common-law concepts, and China 

is not a common-law nation) and may rely on awards of atCase: 16-2902 Document: 29 Filed: 12/09/2016 Pages: 7
6 No. 16-2902

torneys’ fees or some other device to discourage losers from 

continuing their battles. Or China may see more difference 

between Chen’s claims there and his claims here than a federal judge in this nation perceives.

But comity is not Chen’s theme. His lawyer told us at 

oral argument that it had been considered but deliberately 

omitted from the appellate brief. Instead he relies entirely on 

a doctrine of American law: The difference between permissive and compulsory counterclaims. The sort of claims advanced in China, Chen asserts, would have been permissive 

counterclaims under Fed. R. Civ. P. 13(b). And since he was 

free to omit them from Nalco’s suit, he is equally free to assert them in China.

This would be a powerful argument if Chen had done 

nothing but defend against Nalco’s claim for his share of the 

guaranty. But that’s not what he did. He added NMI as a 

third-party defendant and asserted 12 counterclaims against 

both Nalco and NMI. Having elected to take the offensive, 

Chen was obliged to raise all claims that stem from the same 

transaction or series of related transactions (what courts 

sometimes call the “core of operative facts”). See Restatement 

(Second) of Judgments §24 (1982) (rule against claim splitting). 

Chen did not try to raise US counterclaims in the US and 

Chinese counterclaims in China, a strategy that our nation’s 

rules of preclusion allow if the reservation is expressed to 

and accepted by the original court. See Restatement §26(1)(b). 

Instead his 12 counterclaims included several resting on 

Chinese law. Under ordinary rules of claim preclusion, exemplified by Restatement §24, the claims now pending in 

China arise from the same set of related transactions as his 

12 counterclaims and therefore had to be litigated together 

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No. 16-2902 7

with them. As Restatement §25 puts it, “The rule of §24 applies to extinguish a claim by the plaintiff against the defendant even though the plaintiff is prepared in the second 

action (1) To present evidence or grounds or theories of the 

case not presented in the first action, or (2) To seek remedies 

or forms of relief not demanded in the first action.” This is 

known as the doctrine of merger and bar. See also Restatement §19.

Chen does not contest this understanding of preclusion

or dispute the way the district judge applied it. He rests his 

appeal on the distinction between permissive and compulsory counterclaims, a distinction of no moment given his decision to add NMI as a party and present 12 counterclaims in 

Nalco’s debt-collection suit. See Restatement §23 (“Where the 

defendant interposes a claim as a counterclaim and a valid 

and final judgment is rendered against him on the counterclaim, the rules of bar are applicable to the judgment.”). The 

permissive/compulsory distinction is a real one, but it is a 

red herring for current purposes.

AFFIRMED

Case: 16-2902 Document: 29 Filed: 12/09/2016 Pages: 7