The Preclusion Doctrine

Question 1

Basic Rule of Claim Preclusion

Answer 1

Final judgment on the merits precludes the same parties (or those in “privity”) from litigating the same (or a sufficiently similar) claim in a subsequent lawsuit.

o Forbids a party from re-litigating a claim that has already been litigated AND from litigating a claim that should have been raised in a first lawsuit but wasn’t.

If requirements for claim preclusion are met, a party is BARRED from bringing the precluded claim in a new lawsuit.

Question 2

Basic Rule of Issue Preclusion

Answer 2

Final judgment (not necessarily on the merits) precludes re-litigation of the same issue of fact or law, so long as

(1) the issue was actually litigated, decided, and necessary to the judgment in the first action, and
(2) it would not be unfair to invoke the doctrine

Question 3

The four essential requirements for application of Claim Preclusion

Answer 3

1. “Same” Claim: Claim in second suit must be the same claim as in first suit OR be one that “should have been brought” in first suit but wasn’t.
2. “Same” Parties: First and second suits must be between the same parties OR parties “in privity” with one another.
3. Final Judgment: The first case must have ended with a final judgment.
4. On the Merits: The final judgment in the first case must have been “on the merits” of the claims/defenses.

Question 4

Requirement #1: “Same Claim”

Answer 4

If the claim in the second suit is identical to the claim in the first suit, this element is easily satisfied. BUT … claim preclusion bars not only the same claim, but also claims that SHOULD have been brought but weren’t.

Question 5

How do you determine whether a claim is one that “should have been brought” in the first lawsuit? (“Same Claim”)

Answer 5

• Same Transaction Test
• Same Evidence Test
• Primary Rights Test

Question 6

Same Transaction Test

Answer 6

This is the majority test (and the one adopted by federal law).

• Claims arising from the same transaction or occurrence as claims brought in the first suit are treated as the “same claims” and satisfy this requirement.
• This is basically the “SCNOOF” test (arising from “same common nucleus of operative fact”). It is interpreted broadly, and applies where there is a “logical relationship” between the claims.

Question 7

Same Evidence Test

Answer 7

A minority test followed by a significant number of states.

• Claims are deemed to be the “same” if the evidence needed to sustain the claim in the second lawsuit would have also sustained the claim in the first lawsuit.
• Under this test, fewer claims would be deemed to be “the same” than under the transaction test. o Evidence to support both claims doesn’t have to be identical, but must be substantially the same.
  
  • Different courts interpret this test differently, making it challenging to draw a bright line rule in terms of how much evidence must be the same.
• Differences in damages do not usually mean “different claim” under Same Evidence Test, because most courts focus on evidence needed to prove liability, not damages.

Question 8

Primary Rights Test

Answer 8

Followed by very few jurisdictions. California follows this test.

• Is at the opposite end of the spectrum from the “same transaction” test. Very narrow – fewer claims would be considered to be the “same claim” under this test than under the others.
• Under this model, claims are deemed to be the same if they arise from a single “primary right”.
• What is deemed to be a “primary right” is defined by substantive law.
• Examples:
  
  • o The right to enter into and enforce contracts
  • o The right to be free from bodily injury
  • o The right to be free from property damages/economic injury

Question 9

Requirement #2: “Same Parties”

Answer 9

In order for claim preclusion to bar a claim in a second lawsuit, that lawsuit must be between the SAME parties as those in the first lawsuit, OR “parties in privity” with the parties to the first lawsuit.

General Rule: Strangers to a prior adjudication can neither bind nor be bound by claim preclusion.

• BUT … persons “in privity” with parties to the first lawsuit have interests that are SO ALIGNED with those parties that they are treated as though they were the same parties.

Question 10

Definition of “privity” (Requirement 2: “Same Parties”)

Answer 10

o A person is in privity with a party to a lawsuit when the person has the same legal interest as the party to lawsuit AND the person’s legal rights relative to that interest (the identical legal right) was litigated in the lawsuit.

• Persons in a privity relationship are considered to have interests so closely intertwined that a decision involving one such person necessarily should control the other.

Question 11

Requirement #3: Final Judgment

Answer 11

Claim preclusion can apply to a claim brought in a subsequent lawsuit only if the first lawsuit ended with a “final judgment”.

So … what is a “final judgment”?

• Majority view (adopted by federal law and most states): A judgment is “final” when the trial court enters the judgment that ends the case – even if there are subsequent actions to enforce the judgment or appeals.
• Minority view (followed by some states, including California): A judgment isn’t final until the appeal period has run OR any appeal of the judgment that has been filed is resolved.

Question 12

Requirement #4: Judgment “On the Merits”

Answer 12

For claim preclusion to apply in a subsequent case, the final judgment in the first case must be “on the merits”.

What does this mean?

• A judgment is “on the merits” when it is based on the substance of the claims or defenses.

Examples: A judgment entered on a jury verdict; a judgment granting summary judgment dismissing the case, when the summary judgment motion is based on the substance of the claim and/or defenses.

Most jurisdictions will also characterize certain judgments as “on the merits” for preclusion purposes due to policy reasons, even though those judgments are not based on the substance of the claims or defenses.

• Example: Under the federal version of the preclusion doctrine, when a court dismisses a case with prejudice as a sanction for the plaintiff’s failure to follow orders of the court, this is characterized as a “judgment on the merits” for preclusion purposes, even though the dismissal was not based on the substance of the claims or defenses.
• o Example: Most courts would characterize a default judgment as a judgment on the merits, even though the parties never had the opportunity to argue the claims or defenses in the case.

Certain judgments are NEVER deemed to be on the merits.

• These include:
  
  • Dismissal for lack of subject matter jurisdiction, personal jurisdiction, improper venue, or for nonjoinder or misjoinder of parties. (See FRCP 41(b))
  • E.g., a dismissal for failure to join a necessary party under FRCP 12(b)(7) is NOT a judgment “on the merits”.
  • A plaintiff’s voluntarily dismissal of her case without prejudice under FRCP 41(a).
  • Dismissal on grounds of prematurity or failure to satisfy a condition precedent.

Question 13

Issue Preclusion

Answer 13

When issue preclusion applies, it prevents (precludes) re-litigation of an issue that has already been litigated and decided in an earlier lawsuit.

The parties to the later lawsuit must “live with” the finding on the particular issue of fact or law from the earlier case.

• It is not necessary for the claims brought in the two lawsuits to be the same for issue preclusion to apply; what’s necessary is that the particular issue of fact or law is the same.
• Issue preclusion can be used offensively (to support a party’s claim in the second action) or defensively (to defend against a party’s claim in an action).

Question 14

The four essential requirements for application of Issue Preclusion

Answer 14

1. 1. The issue of fact or law sought to be precluded is identical in both lawsuits;
2. 2. The issue was fully litigated and decided in first lawsuit;
3. The first lawsuit ended with a final judgment;

• Note: Most courts do NOT require the judgment to be “on the merits” for application of issue preclusion (in contrast to claim preclusion).
  1. Determination of the issue in the first lawsuit was necessary to the judgment in the first lawsuit.
• Note: Even if these four basic requirements are met, the court may decline to apply issue preclusion if it concludes that it wouldn’t be fair to apply it.

The decision to apply issue preclusion is discretionary with the court.

This fairness concern rarely prevents the application of issue preclusion when you have the same parties (or parties in privity) involved in both lawsuits.

However, as will be discussed later, issue preclusion (unlike claim preclusion) doesn’t require that the parties to both suits be the same (or in privity).

Many courts allow the use of issue preclusion by a stranger to the first lawsuit against a person who was a party to the first suit (or in privity with the party).

Fairness tends to be a greater concern in this context.

Question 15

Requirement #1: Issue of fact or law must be identical in both suits

Answer 15

The determination of whether the issue in Lawsuit #2 is the same as the issue in Lawsuit #1 usually depends on a straightforward analysis of:

1. The factual identity of the two issues, and
2. The burden of proof applicable in the two cases.

Question 16

Requirement #2: Issue Must Have Been Actually Litigated and Decided

Answer 16

To satisfy this requirement, the issue must have been raised and litigated by the parties (meaning that the parties opposed each other on the issue and argued it) and submitted to the court/jury for decision in the first case.

• A fact to which the parties have stipulated (i.e., agreed to) will not satisfy this requirement, nor will settlement by the parties of an issue.
• Note: It is not always clear whether a particular issue – while litigated – was decided. Sometimes, multiple issues are submitted to the jury for determination, and a verdict favoring one party might have been based on a determination of any one of these issues. If you don’t know which issue formed the basis for the verdict, you will not be able to use issue preclusion in this situation.

Question 17

What is “general verdict?”

Answer 17

Most jury trials end with a “general verdict”, which allows a jury to say only who won and how much. This type of verdict does not indicate the basis for the jury’s decision or indicate what factual findings were made. If there was only ONE possible basis for the jury verdict, then the use of the general verdict form won’t prevent the use of issue preclusion. But if the verdict could have been supported by one of several findings of fact, then issue preclusion with respect to any one of those facts won’t be permitted because you can’t tell from the general verdict which findings were made.

Where a judgment could have been based on the determination of any one of two or more matters of fact or law, the party seeking to use issue preclusion based on one of these matters must prove that the judgment was actually based on the determination of THAT matter, as opposed to the determination of any other matter.

Question 18

Requirement #3: Determination of the Issue Must Have Been Necessary to Judgment

Answer 18

This requirement is designed to ensure that the parties put forth their best efforts to litigate the issue in the first suit, ensuring that precluding one of those parties from re-litigating the same issue in a later suit won’t be unfair.

Test to establish whether the determination of the issue in the first case was necessary to support the judgment in that case:

• If the issue had been decided the opposite way, would the same judgment have been entered?
• If yes, then the judgment did not depend on the way the issue was resolved, and the determination of the issue was not necessary to the judgment.

Suppose that you have two grounds for a judgment, each of which would INDEPENDENTLY support the outcome in the case.

These are “alternate grounds” for the judgment, and in this situation, many courts will not allow application of issue preclusion in a subsequent case with respect to EITHER ground, unless and until the case is appealed and the appellate court affirms the ground upon which the party wants to base an issue preclusion argument in a later case.

• Reason for this rule: Courts are concerned that, in the “alternate ground” situation, both grounds that support the judgment may not have been carefully considered by the judge/jury. Since only one ground was necessary to support the judgment, the judge/jury may not have taken the time to carefully consider the other ground. For fairness reasons, we don’t want to preclude someone from litigating a matter in a subsequent case if that matter had not been carefully considered by the decision-maker in the prior case.

Question 19

Requirement #4: Final Judgment

Answer 19

To apply issue preclusion in a second case, the first case must have ended in a final judgment, which is defined the same way as for claim preclusion.

• Note that unlike claim preclusion, the majority of courts do not require the judgment to be “on the merits” for issue preclusion.

Question 20

Non-Mutual Issue Preclusion

Answer 20

Most jurisdictions do not have a “same parties” requirement for application of issue preclusion (in contrast with claim preclusion). When you have the same parties, or parties in privity with those parties, in both a first and second lawsuit, this is referred to as “mutuality”.

• So … mutuality is a requirement for the application of claim preclusion.
• Mutuality used to be required for issue preclusion as well, and some states still require it. But most states, and the federal courts, do not require mutuality for use of issue preclusion.

Offensive use of nonmutual issue preclusion is seen as more problematic than defensive use, with the result that some states allow defensive, but not offensive nonmutual issue preclusion.

The federal version of the doctrine allows both offensive and defensive nonmutual issue preclusion. Michigan does, as well.

Question 21

With the concept of nonmutual issue preclusion, it is important to note the general “due process” rule we have discussed before:

Answer 21

Only persons who were parties to an action, or who were in privity with parties to the action, can be bound by a judgment in that action.

• This means that when you’re dealing with nonmutual issue preclusion, at least ONE party has to be someone who was a party to the first action, or in privity with a party to the first action, and THIS has to be the person against whom you are trying to use issue preclusion.
• You can’t use issue preclusion against someone who was a COMPLETE STRANGER to the prior litigation, because due process won’t allow that person to be bound by the judgment in the prior action.

Question 22

What is “defensive nonmutual issue preclusion”?

Answer 22

A party seeks to use issue preclusion to defend against a claim or defense asserted against him - as a shield.

Question 23

What is “offensive nonmutual issue preclusion”?

Answer 23

A person who was a nonparty to the first litigation tries to use issue preclusion offensively – to prove the nonparty’s claim – against someone who was a party to the prior action – as a sword.

Question 24

Special concerns with offensive use of nonmutual issue preclusion that mostly don’t exist with defensive use:

Answer 24

• Wait and See Attitude
  
  • Party seeking to use issue preclusion in the second suit might deliberately NOT join the first suit, but will instead wait to see how it turns out. If the plaintiff WINS the first suit, the party in the second suit could use findings from the first suit to help his case; if the plaintiff LOSES the first suit, it won’t affect the party in the second suit because he was a stranger to the first suit and can’t be bound – so he just re-litigates all issues in HIS suit, with whatever lessons he might have learned from the plaintiff’s experience in the first suit.
• Such a “wait and see” approach is EXACTLY THE OPPOSITE of what we want, because the purpose of the Preclusion Doctrine is to serve judicial economy. If we allow issue preclusion to be used in this circumstance, we are encouraging separate lawsuits, rather joinder of parties into one lawsuit.
• Prior Inconsistent Judgments
  
  • Suppose a train crash results in 50 separate negligence lawsuits against the railroad, by 50 injured passengers. In cases 1-24, the railroad wins, no negligence found. Then, in Case #25, the passenger finally wins and the railroad is found negligent. If we allow offensive nonmutual issue preclusion in this scenario, this means that passengers 26-50 could now use issue preclusion against the railroad to prove negligence, precluding the railroad from re-litigating the finding in Case #25. This would be unfair.

Question 25

Parklane Factors for nonmutual issue preclusion

Answer 25

• Trial court has broad discretion to determine whether offensive nonmutual issue preclusion should be permitted in a particular case, even when all basic requirements for its use are met.
• Offensive nonmutual issue preclusion should NOT be permitted where:
  
  • A plaintiff could have easily joined in the prior action (but deliberately bypassed the opportunity to do so). (The “wait-and-see attitude” problem.)
• Circumstances suggest that the use of offensive nonmutual issue preclusion would be unfair to the defendant. For example:
  
  • The stake of the party against whom preclusion is sought was small in first case and/or future litigation was not foreseeable, such that the party did not have the incentive to defend vigorously.
  • The judgment relied upon as the basis for preclusion is inconsistent with one or more previous judgments in favor of the party against whom preclusion is sought to be invoked. (See above railroad example)
  • The current action offers the party against whom preclusion is sought to be invoked procedural advantages that were unavailable in the first action and that could readily cause a different result.