## Facts

- In 1962, Louis J. Martino and others entered into a McDonald’s franchise and lease arrangement containing a clause barring Martino or immediate family from acquiring a financial interest in a competing self-service food business without written consent from McDonald’s System and its realty affiliate.
- Martino and the others formed McDonald’s Drive-In of Ottumwa, Iowa, Inc. to operate the franchise.
- In 1968, Martino financed his son’s purchase of a Burger Chef franchise, which McDonald’s System, Inc. and Franchise Realty Interstate Corporation (FRIC) treated as a breach of the restriction.
- In 1972, McDonald’s System and FRIC filed a federal diversity action in Iowa against Martino and others to enforce the contractual restriction.
- The Iowa action ended in 1973 with a consent judgment, accompanied by appended findings of fact and conclusions of law.
- The consent judgment reflected an agreement to sell the Ottumwa McDonald’s franchise to FRIC for $140,000, and the sale was completed.
- In 1975, Martino and McDonald’s Ottumwa sued in the Northern District of Illinois alleging, in relevant part, that enforcing the restriction violated § 1 of the Sherman Act and seeking damages measured by profits allegedly lost from the forced sale.
- The district court granted summary judgment for defendants on the antitrust count, holding it barred by res judicata and, alternatively, by Federal Rule of Civil Procedure 13(a).
- Martino appealed, presenting the question whether the 1973 consent judgment precluded the antitrust claim.

## Issues

1. Whether the 1973 consent judgment precluded the later Sherman Act § 1 claim under res judicata because the new action would undermine rights established by the prior judgment.
2. Whether Federal Rule of Civil Procedure 13(a) independently barred the antitrust claim as an omitted compulsory counterclaim in the Iowa action, despite the absence of a prior pleading by Martino.

## Decision

- The Seventh Circuit affirmed summary judgment for McDonald’s System and FRIC.
- The court held the antitrust claim was barred by res judicata because it functioned as a direct attack on the prior consent judgment and would nullify rights established by that judgment.
- The court declined to rest its holding on Rule 13(a) because the rule presupposes a pleading, and Martino filed none in the Iowa case.
- The court nonetheless applied traditional preclusion doctrine recognizing a narrow category of “common-law compulsory counterclaims” that are barred when later asserted to defeat or undo an earlier judgment.

## Legal Principles

- A consent judgment, particularly one entered with findings and conclusions appended by the court, is treated as a final judgment on the merits for claim-preclusion purposes.
- Claim preclusion bars not only matters actually litigated, but also matters that could have been raised in the earlier action to sustain or defeat the claim, when the later action would disturb the finality of the earlier judgment.
- A later claim is precluded when it seeks, in practical effect, to invalidate or nullify rights established by a prior judgment between the same parties (or those in privity), even if the later claim relies on a different legal theory (such as antitrust).
- Rule 13(a)’s compulsory-counterclaim bar generally applies only when the party had an obligation to plead a counterclaim in response to an opposing party’s pleading; where no pleading was filed, formal Rule 13(a) may not apply.
- Independent of Rule 13(a), traditional res judicata doctrine may bar certain omitted counterclaims where allowing the later claim would operate as a collateral attack on the earlier judgment and defeat its binding effect.
- Courts may decline to recognize an antitrust-specific exception to preclusion absent overriding policy that outweighs the public interest in finality.

## Conclusion

The Seventh Circuit held that Martino’s Sherman Act challenge to the franchise restriction was barred because it would undo the consequences and rights fixed by the earlier consent judgment that enforced the restriction and led to the franchise’s sale, and traditional claim-preclusion principles foreclosed using a later antitrust suit to collaterally attack that judgment.


Martino v. McDonald’s Sys., Inc., 598 F.2d 1079 (7th Cir. 1979)