Offensive estoppel is precluded where plaintiff could have easily joined in the earlier action, or where application would be unfair to a defendant.
Respondent stockholders sued petitioner corporation alleging misleading and material misrepresentations in petitioner's proxy statement. Before the action came to trial, the Securities and Exchange Commission (SEC) filed suit against petitioner, making essentially the same allegations, and entered a declaratory judgement after a trial finding that the proxy statement was materially false and misleading. Plaintiff in the stockholder's action moved for partial summary judgment against the defendants, asserting that the defendants were collaterally estopped from re-litigating the issues that had been resolved against them in the SEC's action. The District Court denied the motion on the ground that such an application of collateral estoppel would violate the defendants' right to a jury trial, but the United States Court of Appeals reversed the decision. The Supreme Court affirmed the judgment of the court of appeals.
Are the stockholders collaterally estopped from re-litigating the question of whether the proxy statement was materially false and misleading?
The application of offensive collateral estoppel will not reward a private plaintiff who could have joined in the previous action, since the respondent probably could not have joined in the injunctive action brought by the SEC. Offensive use of collateral estoppel will likely increase rather than decrease the total amount of litigation, since potential plaintiffs will have everything to gain and nothing to lose by not intervening in the first action. Trial courts should be given broad discretion to determine when the use of offensive collateral estoppel should be applied. Here, the petitioner had an opportunity to litigate their claims.