                           In the
 United States Court of Appeals
              For the Seventh Circuit
                        ____________

No. 03-2510
DOCTOR’S ASSOCIATES, INC., et al.,
                                         Plaintiffs-Appellees,

                              v.


DAVID M. DUREE, et al.,
                                      Defendants-Appellants.

                        ____________
          Appeal from the United States District Court
                for the Southern District of Illinois.
         No. 02-CV-298-WDS—William D. Stiehl, Judge.
                        ____________
    ARGUED DECEMBER 8, 2003—DECIDED JULY 15, 2004
                   ____________



 Before DIANE P. WOOD, EVANS, and WILLIAMS, Circuit
Judges.
  DIANE P. WOOD, Circuit Judge. David M. Duree and
Doctor’s Associates, Inc. (“DAI,” the ultimate franchisor of
the well-known Subway Sandwich fast-food restaurants) are
no stranger to each other or to the courts. Duree has
represented numerous clients in litigation against DAI. See,
e.g., Yates v. Doctor’s Associates, Inc., 549 N.E.2d 1010 (Ill.
App. Ct. 1990); Cox v. Doctor’s Associates, Inc., 613 N.E.2d
1306 (Ill. App. Ct. 1993); Doctor’s Associates, Inc. v. Jabush,
2                                                No. 03-2510

89 F.3d 109 (2d Cir. 1996); Subway Equip. Leasing Corp. v.
Forte, 169 F.3d 324 (5th Cir. 1999); Reed v. Doctor’s Associ-
ates Inc., 772 N.E.2d 372 (Ill. App. Ct. 2002). The present
case, now in its eighth year of litigation, began in 1996.
Duree’s clients prevailed in the underlying case, and after
two sets of appeals, won an award of attorneys’ fees in
addition to their damages.
   When it came time to pay the attorneys’ fees, DAI claimed
that it was unclear which of several lawyers had a right to
collect. Rather than pay the wrong party, it filed an inter-
pleader action in the district court, naming as defendants
Duree, two other lawyers and two law firms. In the same
action, DAI also sought to collect on a sanctions judgment
against Duree that it had been awarded in earlier, separate,
litigation. Duree and the other parties responded with a
variety of counterclaims. To complicate matters, as the
federal case was pending, Duree filed a state action raising
claims related to both the federal interpleader action and
earlier litigation between himself and DAI. When the
district court learned that the state case had been dis-
missed by the trial court and was on appeal, it dismissed all
the counterclaims against DAI without prejudice pending
resolution of the state case. It is from this dismissal without
prejudice that Duree and the others appeal. Because
dismissals without prejudice are normally not final, and
this one does not qualify for any exception to that rule, we
dismiss this case for want of appellate jurisdiction.


                              I
  In 1996, Nicholas Jannotta and Carmein Day Blasucci
sued Subway Sandwich Shops, Inc. (a leasing company DAI
uses) alleging breach of contract and fraud claims based on
violations of their lease agreement with Subway. Duree
represented them in that action through his law firm,
Reinert & Duree, P.C. Jannotta and Blasucci prevailed at
No. 03-2510                                                 3

trial and were awarded compensatory and punitive dam-
ages. Subway appealed the punitive damages award, and
this court vacated and remanded the case to the district
court for a second trial. See Jannotta v. Subway Sandwich
Shops, Inc., 125 F.3d 503 (7th Cir. 1997). At the second
trial, the jury again awarded punitive damages to Jannotta
and Blasucci. The district court also awarded attorneys’ fees
to the plaintiffs for litigating the punitive damages issue a
second time. Jannotta v. Subway Sandwich Shops, Inc.,
1999 WL 184396 (N.D. Ill. Mar 29, 1999). Subway paid the
punitive damages and then appealed the attorneys’ fees
decision; this court upheld that award. Jannotta v. Subway
Sandwich Shops, Inc., 225 F.3d 815 (7th Cir. 2000).
  Unfortunately, that was not the end of the matter.
Throughout this protracted litigation Jannotta and Blasucci
had been represented by the law firm of Reinert & Duree,
P.C. In January 1999, Reinert & Duree dissolved and its
members created two new law firms, David M. Duree &
Associates, P.C. and Reinert & Rourke, P.C. Both firms
served DAI with a notice of lien for the attorneys’ fees, each
claiming an entitlement to 40% of the award. In addition to
the 40% claims of each law firm, the plaintiffs asserted that
at least 60% of the fee award should be paid directly to
them, presumably for reimbursement of fees they had
already paid to counsel. Seeking the court’s assistance in
determining how the award should be distributed among
these competing claimants, DAI filed a statutory inter-
pleader action in the district court. As we have already
noted, DAI also included in its complaint certain claims
against Duree in his personal capacity for unpaid sanctions
arising from litigation that Duree had filed against the
company in Kansas. See Subway Restaurants, Inc. v.
Kessler, 970 P.2d 526, 536 (Kan. 1998) (affirming the trial
court’s imposition of sanctions against Duree) cert. denied
under the name Duree v. Doctor’s Associates, Inc., 526 U.S.
1112 (1999); Subway Restaurants, Inc. v. Kessler, 46 P.3d
4                                               No. 03-2510

1113, 1114 (Kan. 2002) (upholding the trial court’s denial of
Duree’s motion to vacate the sanctions award). All of the
interpleader defendants filed counterclaims against DAI.
Jannotta, Blasucci, and the firm of Reinert & Rourke
claimed that DAI’s act of filing the interpleader action
amounted to malicious prosecution arising from the inter-
pleader action. Duree also counterclaimed for malicious
prosecution, as well as for abuse of process and conversion
arising out of litigation between Duree and DAI in Connect-
icut. In September 2001, the district court resolved the
interpleader action and disbursed the funds. This left on the
table DAI’s claims against Duree in his personal capacity to
collect on the Kansas sanctions award and the counter-
claims filed against DAI by Plaintiffs, Reinert & Rourke,
and Duree.
   While these claims were pending in federal court, Duree,
in his personal capacity, and his law firm, Duree & Associ-
ates, filed a state court action against DAI in Illinois
claiming malicious prosecution, abuse of process, and other
torts arising out of earlier litigation between Duree and
DAI, as well as the federal interpleader action. DAI re-
sponded in state court with a motion to dismiss for failure
to state a claim. The state court agreed with DAI and dis-
missed Duree’s action. Duree v. Doctor’s Associates, et al.,
No. 01-L-341 (St. Clair County, Ill. Dec. 20, 2002) (unpub-
lished order). Duree appealed this adverse judgment to
the Illinois appellate court. Although the Illinois appellate
court had not yet rendered a judgment at the time we heard
oral argument, it has since issued its opinion, upholding the
trial court’s dismissal of all claims relevant to this case.
David M. Duree, et al. v. Doctor’s Associates, Inc., et al.,
Appeal No. 5-02-0847 (unpublished order April 22, 2004)
(Ill. App. Ct. 2004).
 While the state court proceedings were underway, DAI
moved in federal court voluntarily to dismiss its Kansas
No. 03-2510                                                  5

sanctions claims against Duree. The district court granted
DAI’s motion and dismissed all claims against Duree. DAI
also filed motions to dismiss the counterclaims filed by
Jannotta, Blasucci, Reinert & Rourke, and Duree for failure
to state a claim. The district court granted DAI’s motion,
but it specifically said that its dismissal was without
prejudice and that it was not ruling on the merits of the
motion. From the list of dismissed counterclaims that the
court provided, it also appears that it ruled only on Duree’s
counterclaims and Reinert & Rourke’s counterclaims, but
not on the Jannotta and Blasucci counterclaim. In light of
our decision on appellate jurisdiction, we need not consider
whether this was a clerical oversight, or if it provides an
additional reason to dismiss the appeal. See Fed. R. Civ. P.
54(b) (order terminating less than all claims of all parties
is not final in the absence of express determination by
court). The district court noted that the Illinois state court
decision was on appeal, and that the ultimate decision in
that case might have preclusive, or at least persuasive,
effect on the resolution of the counterclaims.
  Duree, Jannotta, and Blasucci appeal from the dismissal
of their counterclaims. (Reinert & Rourke did not join in
this appeal.) The initial, and as it turns out final, question
before this court is whether we have jurisdiction to consider
the merits of the district court’s ruling.


                              II
  Although neither party raised the issue of appellate ju-
risdiction, we must begin by assuring ourselves that juris-
diction is proper. See Wingerter v. Chester Quarry Co., 185
F.3d 657, 660 (7th Cir. 1999) (“A court of appeals has an
obligation to examine its jurisdiction sua sponte, even if the
parties fail to raise a jurisdictional issue.”). This court has
jurisdiction over appeals from final judgments of the district
courts. 28 U.S.C. § 1291. The district court in this case
6                                                No. 03-2510

dismissed the counterclaims without prejudice. Typically,
this kind of dismissal is not “final” for purposes of § 1291
because the plaintiff is free to re-file the case. See Alejo v.
Heller, 328 F.3d 930, 935 (7th Cir. 2003). Under certain
circumstances, however, a dismissal without prejudice may
be final as a practical matter and thus appealable. For
example, if it is clear that the plaintiff cannot amend her
complaint, then the dismissal is final for purposes of
appellate review. See Furnace v. Bd. of Trustees of Southern
Illinois, 218 F.3d 666, 669-70 (7th Cir. 2000). A dismissal
without prejudice may also be functionally final if a newly
filed complaint would be barred by the statute of limita-
tions. See Larkin v. Galloway, 266 F.3d 718, 721 (7th Cir.
2001). In this case, no one has alleged that the statute of
limitations might bar a future suit. In addition, the possibil-
ity of amendment cannot be eliminated: the district court
made no ruling at all on the substance of the claims, and so
there is nothing in the record to resolve that question one
way or the other.
  On appeal and at oral argument, the parties suggested
that both the district court’s ruling and the appellate ju-
risdiction question should be approached in light of the
Supreme Court’s decision in Colorado River Water
Conservation District v. United States, 424 U.S. 800 (1976).
In Colorado River, the Court explained that a federal court
may—in extraordinary circumstances—stay or dismiss a
suit when there is a concurrent state court proceeding and
the stay or dismissal would promote “wise judicial adminis-
tration.” Id. at 818. Such a stay or dismissal is considered
a final judgment. See Quackenbush v. Allstate Ins. Co., 517
U.S. 706, 714-15 (1996); Moses H. Cone Mem’l Hosp.
v. Mercury Constr. Corp., 460 U.S. 1, 10 n. 11 (1983).
Colorado River requires the district court first to determine
whether the state and federal proceedings are parallel and
then to decide whether there are “exceptional circum-
stances” that warrant a refusal of the district court to
No. 03-2510                                                 7

exercise its jurisdiction. See Schneider National Carriers,
Inc. v. Carr, 903 F.2d 1154, 1156 (7th Cir. 1990); Sverdrup
Corp. v. Edwardsville Comm. Unit Sch. Dist. No. 7, 125
F.3d 546, 550-51 (7th Cir. 1997). The district court in this
case (which, in its defense, had never been asked to invoke
the Colorado River doctrine and had given no indication
that it was doing so on its own) made no attempt to com-
pare the federal and state actions or to explain why it would
be proper to abstain until the state court case was over.
Instead, in ordering the case dismissed, the district court
simply noted the related state court action and suggested it
might be prudent to wait until that case was final before
continuing on with the federal litigation.
  On this record, we have no way of knowing what it is the
district court intended by its actions. All we can say is that
the district court thought it was a good idea to wait until
the Illinois appellate court issued its decision. This may or
may not have been correct, but we note for future reference
that the decision to dismiss rather than to stay the case on
that basis was a mistake. See, e.g., Deakins v. Monaghan,
484 U.S. 193, 202 (1988); Central States Pension Fund v.
Paramount Liquor Co., 203 F.3d 442, 444 (7th Cir. 2000).
The court may have been contemplating full-blown absten-
tion, but it is just as likely that the court simply wanted to
see what happened in state court, as a courtesy or as
a warning to the parties that it would be likely or perhaps
required by the full faith and credit statute, 28 U.S.C.
§ 1738, to rule consistently with the state court. It is
enough for present purposes to say that the district court is
not finished with this case, and thus that the appeal is
premature. We leave it to the parties and to the district
court to consider what additional steps are appropriate once
this case is returned to the district court, bearing in mind
on the one hand the exceptional nature of Colorado River
abstention and on the other hand the need to respect the
parallel proceedings in the state courts.
8                                              No. 03-2510

                            III
  Because the district court’s order dismissing the counter-
claims without prejudice was not a final judgment, this case
is DISMISSED for want of jurisdiction.

A true Copy:
      Teste:

                        ________________________________
                        Clerk of the United States Court of
                          Appeals for the Seventh Circuit




                   USCA-02-C-0072—7-15-04
