§ 14.01 Claim Preclusion

 

A final judgment on the merits precludes the same parties (and those closely related to them) from litigating the same (or a sufficiently similar) claim in a subsequent lawsuit.

 

[1] Identical Parties

 

The doctrine of claim preclusion includes an “identity-of-parties” requirement.  In addition to the actual parties in the prior adjudication, persons or entities not named in the original case may be subject to claim preclusion if they are sufficiently related to original parties, i.e., if they are in privity to the litigants.  [E.g., Federated Department Stores, Inc. v. Moitie, 452 U.S. 394 (1981)]

 

Non-parties to a litigation who are in privity to a party are deemed to have had their interests represented in the prior action, or are deemed to have no greater interest than did the losing party in that action. 

 

“Strangers” – those neither parties to, nor in privity with, nor otherwise involved with the prior adjudication – can neither bind nor be bound by claim preclusion.

 

[2] Identical Claims

 

Claim preclusion is founded on an expanded concept of a “claim” which encompasses all of the alternative legal theories and the full scope of damages or other remedies generated by the facts of the original controversy. It is irrelevant whether the claim was actually asserted in the prior case, as long as it could have been.  [Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591 (1948)]

 

Many jurisdictions apply the transaction test set forth in Restatement (Second) of Judgments § 24 in order to determine if a claim should be precluded.  Section 24 defines the claim precluded by the judgment to include “all rights of the plaintiff to remedies against the defendant with respect to all or any part of the transaction, or series of connected transactions, out of which the [original] action arose.”

 

[3] Final Judgment on the Merits

 

A lawsuit cannot have preclusive effect until it has been reduced to final judgment. [Restatement (Second) of Judgments § 13 (1982)]  Federal courts regard their judgments to be final even if the case is under appeal. In contrast, some state systems do not give finality to their judgments as long as there is a possibility that the outcome will be changed through appeal.

 

Only judgments on the merits are entitled to claim-preclusive effect. Judgments in favor of the plaintiff are considered to be on the merits, even if the judgment was rendered by default, stipulation between the parties, or summary judgment.

 

Judgments on the merits for defendants have the same preclusive effect.  However, defendants may obtain judgments in their favor on grounds other than the merits, e.g., lack of personal or subject matter jurisdiction, or improper venue.  Orders dismissing such cases are not judgments on the merits and thus do not have claim-preclusive effect. [FRCP 41(b)]

 

 

§ 14.02 Issue Preclusion

 

The doctrine of issue preclusion (or collateral estoppel) provides that a final judgment precludes relitigation of the same issue of fact or law if:

(1) the issue was actually litigated, determined and necessary to the judgment in the prior adjudication; and

(2) the circumstances of the particular case do not suggest any reason why it would be unfair to invoke the doctrine.

 

Issue preclusion usually does not carry the identity-of-parties requirement found in claim preclusion, but due process protects genuine strangers to the original litigation from being bound by issue preclusion.

 

[1] Identity-of-Issues

 

Issue preclusion (collateral estoppel) can operate only if the legal or factual issues in the original and succeeding proceeding are identical [Restatement (Second) of Judgments § 27 (1982)], and “where the controlling facts and applicable legal rules remain unchanged.”  [Commissioner of Internal Revenue v. Sunne, 333 U.S. 591 (1948)].  A litigant may not escape issue preclusion by couching issues to appear new, even if he can demonstrate that differences in factual support or legal argument might cause the issue to be resolved differently in the succeeding case.

 

 [2] Actually Litigated

 

Issue preclusion bars relitigation of only those matters that were actually litigated and determined in the prior case. Issues determined in a prior action by motion, such as for dismissal based on failure to state a claim, for judgment on the pleadings, summary judgment, or directed verdict may in fact be raised and tried in future litigation.  [Restatement (Second) of Judgments, note 116, § 27, comment d]

 

[3] Necessary to Judgment

 

Issue preclusion does not apply to issues that were not necessary to the judgment as such issues are generally not appealable. [Restatement (Second) of Judgments, § 27, comment h]

 

When alternative issue determinations support the judgment, preclusion is also inapplicable since the judgment is not conclusive with respect to either issue standing alone. [See Restatement (Second) of Judgments § 27, Comment (i)]  However, the Restatement regards such determinations as preclusive if both grounds are affirmed on appeal.

 

[4] Fairness

 

Issue preclusion in a given case may be deemed unfair where:

(1)  it was not sufficiently foreseeable at the time of the initial action that the issue would arise in the context of a subsequent action; or

(2)  the party sought to be precluded did not have an adequate opportunity or incentive to obtain a full and fair adjudication in the initial action.

[Restatement (Second) of Judgments, note 116, supra, § 28(5)]

 

[5] Nonmutual Preclusion Doctrine

 

Under due process principles, a stranger to a litigation cannot be bound by its judgment.  [Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979)]  However, strangers to a prior litigation may be able to invoke issue preclusion against those who were parties, unless it appears unfair to do so (the “nonmutual preclusion” doctrine).

 

In Parklane Hosiery, the Supreme Court stated that non-mutual preclusion should be denied when:

(1) sought by one who deliberately bypassed an opportunity to participate in the prior action;

(2) the stake of the party against whom preclusion would be invoked was deceptively small in the prior action;

(3) the subsequent proceeding affords significantly more advantageous procedural opportunities for that party; or

(4) there were inconsistent prior judgments.

 

Furthermore, Restatement (Second) of Judgments § 29 makes clear that issue preclusion is unavailable if the party who would be bound “lacked full and fair opportunity to litigate the issue in the first action or other circumstances justify affording him an opportunity to relitigate the issue.”

 

A minority of jurisdictions apply the mutuality doctrine, precluding strangers from using issue preclusion to its advantage against a party to the prior litigation.

 

 

§ 14.03 Full Faith and Credit

 

The principle of full faith and credit requires that a judgment be given as much effect where presented for enforcement as it would have had where rendered.  Full faith and credit obligations appear in the Full Faith and Credit Clause of the United States Constitution [Article IV, § 1] and in the full faith and credit statute, 28 U.S.C. § 1738.

 

[1] State Judgments in Sister-State Courts

 

Except in child custody cases, the Full Faith and Credit Clause and statute impose on state courts the requirement to honor the judgments of sister-states as they would have been applied in the state that rendered the judgment.

 

[2] State Judgments in Federal Court

 

The full faith and credit statute imposes upon federal courts an obligation to recognize and enforce the judgments of state courts.

 

Federal courts must give the same preclusive effect to a prior state court judgment that it would receive in the state in which it was rendered.  [Allen v. McCurry, 449 U.S. 90, 96 (1980)]  Federal courts may not give any more preclusive effect to state court judgments than they would have under the law of the rendering state. [Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373 (1985)]

 

[3] Federal Judgments in Other Federal Courts

 

A federal statute, 28 U.S.C. § 1963 provides that for judgments “for the recovery of money or property” “judgment so registered shall have the same effect” as if it had been rendered where registered, suggesting that the law of the federal circuit where the federal judgment is presented for enforcement will control.

 

[4] Federal Judgments in State Courts

 

Neither the Full Faith and Credit Clause of the Constitution nor the full faith and credit statute [28 U.S.C. § 1738] makes provision for federal judgments in state court.  However, in a series of decisions, the Supreme Court filled the gap by reading the full faith and credit statute to require state courts to respect federal judgments. [E.g., Embry v. Palmer, 107 U.S. 3, 9-10 (1882); Stoll v. Gottlieb, 305 U.S. 165, 170 (1938)]

 

Federal question judgments have effect under federal preclusion doctrine. The preclusive effect of federal diversity judgments must be determined by the intramural preclusion law of the state where the federal court rendering the judgment was sitting. [Setek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497 (2001)]