11 Exercise Eleven – Preclusion


A.  Overview

Preclusion can be one of the most analytically difficult areas of civil procedure.  The basic doctrines of preclusion are relatively straightforward, but in the application of concrete situations to those doctrines lies the difficulty.  One can easily say the balance of the entire claim is precluded, but what is the full extent of the claim?  One can easily say that only an issue necessary to the result is precluded, but when is an issue necessary?  This exercise explores these concepts.

The term preclusion is an umbrella for the related series of doctrines that deal with deciding when a court will bar litigation of a claim or issue because that claim or issue has already been decided in a previous action.  This entire area of the law comes to us from common law decisions.  It is not treated in the Federal Rules of Civil Procedure.

Working with the common law decisions in preclusion is made more difficult because terminology in the area is not uniform.  Courts and commentators can and do disagree, for example, on the meaning of “res judicata.”  The majority use the term to apply only to preclusion of entire claims, but the Restatement (Second) of Judgments uses it more broadly to apply also to preclusion of issues.  Beyond these disagreements, some courts simply misuse the terms.  Accordingly, our first order of business is to explain the meaning of the many terms in this area as they are used in this exercise.

To avoid this dispute over the scope of res judicata, we will use terms of clear meaning:  claim preclusion and issue preclusion.  Claim preclusion bars claims;  it is claim wide.  Issue preclusion bars issues;  it is issue wide.

Both require two lawsuits—neither applies to a direct attack on a judgment in the same proceeding.  A judgment in the first lawsuit is asserted to preclude all or part of the second lawsuit.  Preclusion does not operate within a single lawsuit.  A motion to vacate a judgment cannot be defeated by application of preclusion.

Claim preclusion, or what most courts and commentators would call res judicata, provides that a final, valid judgment on the merits will prevent parties (and those in privity with them) from relitigating the entire claim, i.e., all issues that were or should have been litigated, in a second action.  Typically, a plaintiff will have split the claim, asserting only part of it in the first suit.  The plaintiff may bring a second suit on an additional theory of recovery or for additional damages.  Even though never litigated, these additional theories or damages are precluded.  Should the plaintiff have won the first suit, the additional matters are sometimes said to have merged into the first judgment.  Should the plaintiff have lost the first suit, the additional matters might be said to be barred by the first judgment.  Some might therefore refer to claim preclusion as merger and bar.  Claim preclusion covers the entire claim.

Issue preclusion, or what many would call collateral estoppel, provides that a final, valid judgment on the merits will prevent parties (and those in privity with them) from relitigating an issue that was actually litigated and necessary to the prior judgment should the same issue arise in a different claim.  For example, A sues B for negligence.  A receives a judgment after trial.  B then sues A for negligence in the same incident.  B will be precluded from relitigating the issue of her negligence (and will therefore lose on summary judgment in a contributory negligence state).  Issue preclusion covers only individual issues.

Both of these doctrines will be developed in more detail in the following sections of this introductory essay, but first we mention two doctrines that are related, yet distinct.  Law of the case  works within a single case.  It provides that once an issue is decided by an appellate court, the decision will be binding on the lower court on remand;  it will also be binding through self-restraint by the appellate court should the case return on a second appeal.  Stare decisis, or precedent, applies the result in a case to a second, factually-similar case.  The doctrine is based in principles of stability and consistency, and attempts to ensure that like‑situated litigants are treated alike.  While preclusion doctrines require the same parties and are binding even in different jurisdictions, a precedent will be applied to different parties but will be treated as only persuasive rather than binding in different jurisdictions.

B. Policy

Preclusion is supported by policies protecting both private and public interests.

Policies protecting private litigants from being “twice vexed” by the same claim are strong.  First and foremost, the prevailing party has a definite interest in the stability of the judgment.  This means the party can rely on a decision, such as ownership of property, in planning for the future.  Beyond this consideration, litigation is always a burden, financially and emotionally; second litigation of the same matter is an additional burden.  Preventing relitigation also serves the end of halting a potential means of harassment of a person.

Public policies served by preclusion are equally or more weighty.  Preclusion is a necessity so that the judgment of a court is not a mere empty gesture.  The state has a definite interest in the end of litigation, not only to protect its judgments but also to conserve finite judicial resources.  This promotes efficiency in a court system, and makes room for the court to hear other parties’ disputes.  When litigants understand that the court will apply preclusion, the litigation will have an end.  Persons other than the parties will also be able to rely on judgments.

At the same time, promotion of these policies comes at a price.  The second claim or issue is precluded no matter what its merit.  The court may even be convinced that the first judgment was wrong.  It is still preclusive.  “Res judicata reflects the policy that sometimes it is more important that a judgment be stable than that it be correct.”  John H. Friedenthal, Mary Kay Kane & Arthur R. Miller, Civil Procedure § 14.3, at 655 (4th ed. 2005).

C. Affirmative Defense

Claim preclusion and issue preclusion are affirmative defenses, enumerated in Federal Rule 8(c)(1).  Consequently, they must be pleaded or they will be lost.  The court will not likely raise the defense on its own initiative.  A party might also waive its right to assert a preclusion defense by actions explicit or implicit in the first litigation.


A.  Claim Preclusion

Claim preclusion provides that a final, valid judgment on the merits prevents relitigation of the entire claim, including all matters that were or should have been litigated, by the same parties, plus others in privity with them.  The constituent elements of claim preclusion are the following:

1) a final, valid judgment on the merits;

2) the same parties, plus others in privity with them;  and

3) the entire claim, including all matters that were or should have been litigated.

We briefly examine each of these three elements in turn.

1. Final, Valid Judgment on the Merits

All courts agree that claim preclusion requires a final, valid judgment.  To be valid, a judgment must have been reached by a court with proper subject matter and personal jurisdiction.  The judgment is valid when the court had jurisdiction, even though the result of the case may be thought erroneous.  To be final, the court must have completed “all steps in the adjudication * * *  short of execution.”  Restatement (Second) of Judgments § 13 (1982).  Consequently, a judgment is final, for preclusion purposes, even though it remains unexecuted.  More importantly, most courts hold a judgment of a trial court final even though the losing party takes an appeal.

Disagreement among courts and commentators is encountered when the element of a final, valid judgment is expanded to include “on the merits.”  See generally John H. Friedenthal, Mary Kay Kane & Arthur R. Miller, Civil Procedure § 14.7 (4th ed. 2005).  Most would agree that the judgment must have been on the merits to support claim preclusion, although agreement with that proposition is not universal.  The problem arises in the context of a pretrial dismissal of a claim.  While a dismissal for lack of jurisdiction certainly is not on the merits, a dismissal for failure to state a claim is treated as on the merits by most courts.  While almost all courts agree that a default judgment or a consent judgment can support claim preclusion, they disagree whether voluntary dismissal or involuntary dismissal for rule violation can support claim preclusion.  For example, is claim preclusion supported by involuntary dismissal under Federal Rule 41(b) for failure to prosecute?  Such a result would appear to have nothing to do with the merits, yet the rule itself provides otherwise:

If the plaintiff fails to prosecute or to comply with these rules or a court order, a defendant may move to dismiss the action or any claim against it.  Unless the dismissal order states otherwise, a dismissal under this subdivision (b) and any dismissal not under this rule–except one for lack of jurisdiction, improper venue, or failure to join a party under Rule 19–operates as an adjudication on the merits.

Fed. R. Civ. P. 41(b).    Such problems have prompted some commentators to eliminate the requirement that the judgment be “on the merits.”  Every court and commentator does agree that a judgment reached after trial, summary judgment, or judgment as a matter of law is on the merits.

2. Same Parties and Others in Privity

A judgment will not be preclusive unless the parties in the second suit are identical to, or are in privity with, the parties in the first suit.  Any stranger to the first litigation cannot be bound by it.  Two suits with different parties may qualify for issue preclusion, but not for claim preclusion.  Little difficulty is presented in determining whether the same parties are involved;  somewhat more difficulty is presented in determining privity.

The answer historically has been that people were in privity only when they acquired the same interest that had been litigated in the first suit, i.e., the person was a successor in interest to a party.  Typically, the person might obtain the interest by inheritance, or by assignment.  Over the years, courts have extended the concept of privity into other areas.  A person who actually controlled the first suit is in privity with the party, as when an insurance company provides the defense for a policyholder who is the named party.  Privity will be found between legal representatives and the people they represent, such as guardian and ward, trustee and beneficiary, and the like.  Commercial relationships may also support a finding of privity, such as employer and employee.  Some commentators even go so far as to say that privity has been so expansively interpreted that it now has become only a verbal symbol for any type of relationship that a court will use to bind a nonparty to a judgment.

One must keep in mind that, even though expanded over the years, privity remains narrow.  Persons similarly situated or of like interests with parties are not in privity with them.  All instances of persons in privity involve a legal relationship.

3. Same Claim Barred, Including All Issues That Were or Should Have Been Litigated

The preclusive effect covers the entire claim, including not only issues that were litigated but also all issues that should have been litigated.  A plaintiff who sues on only one of two available theories of recovery will be precluded from later proceeding on the other theory.  The preclusion might be called merger or bar, depending on whether plaintiff won or lost the first action.  The same can be said for a plaintiff who seeks damages in the first action, and sues again for additional damages in a second action.  Even though plaintiff legitimately discovers additional, unanticipated damages, he will be precluded.

Since the same claim is precluded, the question becomes when the same claim is presented, or how expansively the claim in the first suit will be defined.

Note first that we use the word “claim” instead of the phrase “cause of action.”  While the cause of action was important at common law, and remains of importance in the minority of American jurisdictions that are code states, it has been rendered obsolete in federal courts and the states that have patterned their rules after the Federal Rules of Civil Procedure.  Accordingly, we refer only to claim.

Having said that, we also note that some states choose to define claims broadly to encourage joinder and discourage multiple litigation.  Other states choose to define claims rather narrowly out of concern for the perceived harshness of preclusion.

What test can be used to define the limits of a claim?  Some courts look at whether the same evidence would be used in both suits.  Let us suppose that B is employed by A.  A fires B and in the course of the exit interview, becomes agitated and strikes B in the face.  B sues A for race discrimination in the firing and the case proceeds to judgment.  In a second action, B sues A for breach of contract and battery.  The breach of contract theory would be supported by the same evidence as the discrimination theory—the contract, evaluations, etc.—so would be part of the same claim.  The battery would be supported by completely different evidence—the striking, etc.—so would be a different claim and preclusion would not apply.

Other courts attempt to determine whether the second action would have the effect of destroying the first judgment.  Using the same hypothetical of A firing B, one would expect that neither theory would be part of the same claim:  no matter what the result on the discrimination action, a later decision for or against breach of contract or for or against battery would not destroy the first judgment.

Probably the test most commonly used by courts wishing to narrow the effect of claim preclusion asks whether the same primary right was violated by the same primary wrong.  This is known as the primary right-primary wrong test.  In the above hypothetical of A firing B, each of the separate theories would be a primary right and a primary wrong, so neither of the other two theories would be precluded.  Courts adopting this test would likely call the theories causes of action.  Similarly, an auto accident might produce both personal injury and property damage to a driver.  Under the right-wrong test, the right of not having personal injury inflicted matches the wrong of not inflicting personal injury on another.  The property damage is a separate matching of right-wrong, and so a different claim.  Or, a theory of restitution would be considered different from a theory of damages for breach of the same contract.

Today, many courts have abandoned these efforts in favor of a transactional test.  This test refuses to define a claim through narrow legal theories, and instead determines the scope of a claim by the transaction, i.e., the facts, presented.  The transactional approach looks to what a lay person would expect to be included in a single litigation and fits perfectly into the scheme of the Federal Rules of Civil Procedure.  The transactional approach produces this rule:

(1) When a valid and final judgment rendered in an action extinguishes the plaintiff’s claim pursuant to the rule of merger or bar * * * the claim extinguished includes 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 action arose.
(2) What factual grouping constitutes a “transaction,” and what groupings constitute a “series,” are to be determined pragmatically, giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties’ expectations or business understanding or usage.

Restatement (Second) of Judgments § 24 (1982).

What matters, therefore, is what theories or damages were sufficiently factually related that they could have been brought in the first suit.  Should plaintiff have omitted theories of recovery then available, plaintiff has split theories and will be subject to claim preclusion.  Should plaintiff have omitted elements of damages that could have been brought in the first suit, she has split damages, and will be subject to claim preclusion.

This transactional test for a claim produces different results in the hypotheticals considered above.  Consider first the firing of B by A.  B was fired only once, and was punched during the course of the firing.  That is one grouping of facts, only one transaction, and therefore one claim.  Plaintiff B cannot split it into two actions, and claim preclusion will apply.  The breach of contract and the battery theories will be barred or merged into the first judgment.  Similarly, one auto accident produces one claim, including all types of damages flowing from it, so a second action on property damage would be precluded by the first judgment on personal injury.  One contract produces one claim, no matter whether the theory is restitution or damages.

The transactional test gives broad scope to res judicata.  It gives full effect to the policies supporting the doctrine.  See I.B, supra.  Exceptions exist when claim preclusion will not prevent splitting a claim.  See II.C, infra.

B.  Issue Preclusion

While claim preclusion covers the entire claim, issue preclusion prevents relitigation of an individual issue.  Issue preclusion provides that a final valid judgment prevents the same parties, plus others in privity with them, from relitigation in another claim of issues actually litigated and necessarily decided by that judgment, unless unfairness would result.  “When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.”  Restatement (Second) of Judgments § 27 (1982).  The constituent elements of issue preclusion (collateral estoppel) are the following:

1) a final, valid judgment;

2) the same parties, plus others in privity with them;

3) an identical issue in the new claim;

4) the issue was actually litigated;

5) the issue was necessary to the judgment;  and

6) no unfairness would result.

We briefly examine each of these six elements in turn.

1. Final, Valid Judgment on the Merits

As with claim preclusion [see II.B.1, supra] the first requirement for issue preclusion is a final, valid judgment.  The court must have had jurisdiction, and the judgment must be final except for execution or appeal.

The requirement of a judgment to support issue preclusion is both narrower and broader than for claim preclusion, however.  It is narrower in that a default judgment or a consent judgment cannot support issue preclusion because neither was litigated.  It is broader in that issues estopped need not involve the merits of the case.  For example, plaintiff sues defendant in a distant state.  Defendant appears and contests personal jurisdiction.  Defendant loses the jurisdictional challenge and does not fight the merits, allowing plaintiff to obtain a default judgment.  Plaintiff then sues in defendant’s home state to enforce the judgment.  This is treated as a different claim:  the first claim is on the underlying transaction, and the second is on the foreign judgment.  Defendant will be precluded from relitigating the issue of personal jurisdiction because it was actually litigated and decided, even though it did not involve the merits.  On the other hand, should defendant have ignored the process from the distant court, it could litigate the issue in the home state because the issue would never have been litigated.

2. Same Parties and Those in Privity

Traditionally, issue preclusion has required the same parties, or privies, in both actions;  this requirement was the same as claim preclusion [see II.A.2, supra].  The reason a nonparty cannot be bound by a judgment in which it did not participate is this would violate due process.  The reason is more difficult to discover when a party to the first action is to be bound by a nonparty to the first action.  Certainly, the bound party had its day in court, so due process is not offended.  What then prevents binding a party by a nonparty to the first action?

Historically, the doctrine of mutuality was thought to require the identical parties in both suits.  The doctrine was based on fairness, i.e., any party seeking to take advantage of a favorable result in the first case must have been at risk of an unfavorable result in the same case.  Accordingly, when the first suit was between A and B, the second must also be between A and B;  a second suit between A and C would not serve for issue preclusion.

The doctrine of mutuality began to break down in the states in the early 1940s.  Today, although some states cling to mutuality, most states and the federal courts have abandoned mutuality in favor of ruling that issue preclusion may bind a person who was a party to the first action, even though the opposing party in that action was different from the opposing party in the second action.  The person to be precluded has had a day in court.  Of course, due process still prevents a nonparty to the first action from being bound.  In a simple example, when the first action is between A and B, and the second action is between A and C, then A may be precluded in the second action.  C, as a nonparty to the first action, may not be bound.

Nonmutual issue preclusion can work in two situations:  defensive collateral estoppel and offensive collateral estoppel.  The policies behind the two are quite different.

Defensive collateral estoppel would apply in this situation.  A sues B for patent infringement.  Following full litigation, the court adjudges the patent invalid.  A then sues C for infringement of the same patent.  C pleads collateral estoppel against A on the issue of the validity of the patent.  C is using collateral estoppel defensively, to defeat plaintiff’s claim.  See Blonder–Tongue Labs., Inc. v. University of Illinois Found., 402 U.S. 313, 91 S. Ct. 1434, 28 L.Ed.2d 788 (1971).  Similarly, a plaintiff who sues the employer (master) for a car accident when the employee (servant) was driving will be collaterally estopped on the issue of the employee’s negligence by an unfavorable judgment in the first action.  Most courts recognize nonmutual defensive collateral estoppel.

The policies behind the doctrine are strong.  Preventing relitigation of an issue litigated and decided against a plaintiff promotes stability of judgments, economy of judicial resources, and prevention of inconsistent results, and also protects the second defendant from harassment by the plaintiff.

A more questionable situation is presented in offensive collateral estoppel, a situation in which plaintiff defeats defendant in the first action and a new plaintiff seeks to take advantage of the first judgment against the same defendant in a second action.  The Supreme Court approved use of offensive collateral estoppel in the following situation.  P sued D for issuing a false proxy statement;  D demanded a jury trial.  Before the case went to trial, the Securities and Exchange Commission sued D for issuing the same false proxy statement.  The SEC action went to a court trial and D lost.  P then successfully asserted that judgment as collateral estoppel in the jury action on the issue of the falsity of the proxy statement (even though defendant thereby lost the right to have a jury decide the issue).  See Parklane Hosiery Co. v. Shore, 439 U.S. 322, 99 S. Ct. 645, 58 L.Ed.2d 552 (1979).

Here the prior judgment was being used offensively by plaintiff instead of defensively by defendant.  Offensive collateral estoppel is used most often in a mass tort situation.  When the first plaintiff proceeds to a successful judgment, the other plaintiffs in the lawsuit pipeline can and do move for partial summary judgment on the issue of liability.

The policies for offensive collateral estoppel are quite different from defensive collateral estoppel.  Rather than encouraging plaintiff to join all parties in the first suit, the incentive is for potential plaintiffs to stay out of the first suit.  Should the first plaintiff be successful, another plaintiff can then file suit and assert collateral estoppel.  Should the first suit be unsuccessful, another plaintiff can then file suit and start from the beginning;  the second plaintiff, as a nonparty to the first suit, cannot be collaterally estopped.  This different consequence raises fairness concerns.  Also, the policy of promoting efficiency to the court system may be undermined instead of encouraged by offensive collateral estoppel, since the incentive is to wait, see, and file additional suits instead of joining the first suit.

Despite these policy differences between nonmutual defensive collateral estoppel and nonmutual offensive collateral estoppel, many courts today allow both.

3. Different Claim;  Identical Issue

The claim must be different;  otherwise, claim preclusion would apply, since it covers issues that were or should have been litigated.  See II.A.3, supra.  A different claim with a common issue would be presented, for example, should a landlord sue on rent due for the month of October and proceed to judgment, then bring a second action for rent for the month of November.  Each month is a separate claim.

In many situations, the issue will be identical without question.  At other times, the court may decide that the issue is not identical despite its close similarity.  For example, a decision on tax treatment in one year may not be the identical issue to tax treatment in another year.  Circumstances may also change.  The burden of proof may be different in the two actions.  Of course, when the burden of proof is more favorable to the party to be estopped, the issue may be found identical:  when a defendant is convicted of murdering a relative in a criminal proceeding, that judgment can be used to collaterally estop the same person as plaintiff/beneficiary in a suit against the insurance company for the proceeds of a policy on the life of the deceased.  Note in this example there is no mutuality of the parties, yet defensive collateral estoppel would be applied.

4. Issue Must Have Been Actually Litigated

Collateral estoppel will apply only to an issue that actually was litigated in the first action.  That means, by definition, dispositions such as default judgments, consent judgments, and voluntary dismissals cannot qualify for collateral estoppel.  Similarly, issues that may appear in the final judgment, but which were not the subject of contest in the action, will not support collateral estoppel.  Should a defendant admit an issue in the answer, or even fail to contest it at trial, the issue would not have been litigated.  On the other hand, a judgment by summary judgment or by judgment as a matter of law may qualify for collateral estoppel should the motion have been contested.

When an issue was not actually litigated, the policy of finality of judgments will be outweighed by the policies of fairness and decision on the merits.  A party may not litigate an issue in the first action for various reasons, including 1) small amount in controversy, 2) inconvenient forum, or 3) poor timing for the litigation.

Whether an issue was litigated may be difficult to determine.  The decision may require looking at the record of the first action.  Should the record be unclear, the court will probably find the issue was not litigated.  This situation would arise often when the first action was determined by a general verdict.  For example, A sued B for breach of contract and the defense pleaded was a denial and also a release.  The general verdict was for B, the defendant.  Was only the breach litigated, or was only the affirmative defense litigated, or were both litigated?  Extrinsic evidence may provide the answer, but extrinsic evidence cannot contradict the record.

5. Necessary

Collateral estoppel will not be applied unless the decision on the issue in the first action was necessary, i.e., essential, to the result.  For example, P sues D for negligence and D pleads contributory negligence.  The judgment is for D on a finding of no negligence.  A further finding of contributory negligence against P is not necessary to the result and accordingly is not preclusive.  This requirement is rooted in fairness, which is that a party should be estopped only on essential issues from the first action because the party may not have made a full effort on nonessential issues.  Further, the court may not have considered such nonessential issues as closely as it did the necessary issues, and no appellate review was likely pursued.

The party who prevailed may have lost some of the issues.  These issues cannot be used to estop the party in a second action because necessarily they were not essential to the outcome of the case.  Recall the previous hypothetical of A suing B for breach of contract with a denial and an affirmative defense of release.  Should the jury find by special verdict that the contract was valid but that B had been released, B wins.  The issue of the validity of the contract cannot be the basis of preclusion against B in a second action because B prevailed in the first.

Alternative findings in the first action pose a problem.  Again, in the previous hypothetical in which A sued B on a contract and B pleaded an affirmative defense of release, should A prevail on a general verdict, the judgment necessarily was against B on both the contract and the release.  Both would be collaterally estopped in a second action.  On the other hand, should B prevail on the general verdict, one is not clear whether the contract or the release, or both, afforded the basis for the decision.  The situation may be clarified should the court have employed a special verdict;  assuming the jury specially found for B on both the contract and the release, as alternative findings both may be collaterally estopped in a second action.

Some of the older opinions distinguish between mediate facts and ultimate facts in whether collateral estoppel should apply.  An ultimate fact was one on which the action was based, such as an element of the case;  a mediate fact was a mere evidentiary one from which an ultimate fact could be inferred.  Ultimate facts were appropriate for collateral estoppel;  mere mediate facts were not.  Assume D is driving a car that strikes P1, and a half-hour later in a second accident strikes P2. P1 sues for negligence and by special verdict the jury finds D had been drunk and was negligent.  In the action by P2, no preclusive effect will be given to the finding D was drunk as that was only an evidentiary fact allowing an inference to the ultimate fact that D did not use due care.  This terminology is outdated.  Today’s approach looks to whether a fact was necessary to the result, not to how the fact fits into the hierarchy of the inferential structure of the elements of the case.

6. Fairness

Even when all of the five above tests for collateral estoppel are met, the court may still refuse to apply the doctrine should the result appear to be unfair because of an inadequate “opportunity or incentive to obtain a full and fair adjudication in the initial action.”  Restatement (Second) of Judgments § 28(5)(c).  Some examples of situations in which a court has refused issue preclusion because of unfairness include inadequate representation in the first action, small amount in controversy in the first action, apparent compromise by the jury in the first action, and unforeseeability of additional action(s).  Interestingly, one assertion of unfairness might be that collaterally estopping a party in a second action would deprive it of the right to jury trial.  This type of unfairness did not prevent the Supreme Court from approving use of offensive collateral estoppel.  Parklane Hosiery Co. v. Shore, 439 U.S. 322, 99 S. Ct. 645, 58 L.Ed.2d 552 (1979).

C.  Exceptions to Preclusion

Situations exist in which the elements of one of the preclusion doctrines fit, yet the court will refuse to apply the doctrine.  While we do not develop these situations in any depth as they are beyond the scope of this brief note, they include when preclusion would defeat a strong governmental policy, when preclusion was waived by a party in the first action, when the law has changed in the interim, and when the jurisdictional limitations of the first court prevented the full claim from being litigated.  This is especially true when both the federal courts and state courts are involved.  See generally Larry L. Teply & Ralph U. Whitten, Civil Procedure 993-96, 1011-16 (4th ed. 2009).


Instructions. This section contains questions for you to answer to test and strengthen your knowledge of the law of preclusion.  Use your scrolling feature so that the screen shows only the question.  Answer the question yes, no, or maybe and formulate your reasoning, then scroll down to compare your answer to the authors’ answer.  P represents plaintiff and D represents defendant.

A. Claim Preclusion

Q–1.  Part 1.  P sues D for damages in construction of a house, asserting theories of breach of warranty and negligence.  D moves to dismiss for lack of personal jurisdiction.  The motion is granted, and the case is dismissed.  P later sues D using the identical complaint in another state’s court.  D pleads res judicata.  Does claim preclusion apply?

Part 2.  Instead, the motion to dismiss for lack of personal jurisdiction is denied.  Following jury trial, P obtains a judgment.  Six months later, D moves to vacate the judgment on the ground of fraud.  P pleads res judicata.  Does claim preclusion apply?

Part 3. The motion to dismiss for lack of personal jurisdiction is denied.  Following jury trial, P obtains a judgment.  D appeals.  While the appeal is pending, P files a second action for damages from construction of the house, alleging a theory of strict liability.  D pleads res judicata.  Does claim preclusion apply?






Answer to Q–1.  Part 1.

No.  Claim preclusion requires a final, valid judgment.  While some courts and commentators differ on whether the judgment must be on the merits, all would agree that a dismissal for lack of jurisdiction cannot support res judicata.

Part 2.  No.  This is a direct attack on a judgment within the same action.  Res judicata can apply only in a second action.

Part 3.  Yes.  This is a situation in which P has split theories of recovery, and res judicata will apply.  The pendency of an appeal does not affect the finality of the trial court’s judgment.

This answer is based on a transactional definition of claim.  A primary right-primary wrong definition would likely produce the opposite result.  See II.A.3, supra.






Q–2.  Part 1.  P, purchaser of shares of D Corp. pursuant to a prospectus issued by the corporation, sues on the ground that the prospectus contains a false statement.  P obtains a final judgment of damages for $9,500;  the judgment is satisfied.  P2, a neighbor of P, who purchased shares of D Corp. pursuant to the same prospectus, sues on the ground that the prospectus contains the same false statement.  P2 pleads the first judgment as res judicata.  Does claim preclusion apply?

Part 2. P3, a nephew of P, obtains the shares from P by inheritance.  Dissatisfied with the amount of the judgment in the first case of P v. D Corp., and being a nonparty to that case, P3 sues D Corp. on the ground that the prospectus contained a false statement.  Does res judicata apply?





Answer to Q–2. Part 1.

No.  Claim preclusion requires the same parties, or those in privity with those parties, in both actions.  In this hypothetical, the first action is P v. D Corp. and the second action is P2 v. D Corp.  The common party in both suits is D Corp.  This may allow use of issue preclusion against D Corp., in a state that has abandoned the requirement of mutuality, but claim preclusion still strictly requires parties or those in privity with them in both suits.

Similarly, the judgment against D Corp. in the first action may support stare decisis, or precedent, in the second action, but this is not res judicata.

Part 2.  Yes.  The nephew obtained the shares by inheritance from P.  Consequently, P3 is in privity with P.  Since P was a party to the first action, P’s privies are also bound by res judicata.  This is a situation in which P has split damages.






Q–3. P sues D in federal court for age discrimination because D terminated her employment.  Following a jury trial and verdict, judgment is entered for D.  P later files action against D in state court for breach of employment contract and defamation.  D pleads the affirmative defense of res judicata.  Does claim preclusion apply?






Answer to Q–3.

Yes.  Res judicata is claim wide, precluding all matters of fact and law that were or should have been litigated.  P was terminated once:  she has one claim, which arose in a single transaction.  She must assert all her theories of recovery in the same action, instead of splitting her theories as she did in this hypothetical.  Both of the state law theories could have been pleaded in separate counts in the federal action (Fed. R. Civ. P. 10(b)), and supplemental jurisdiction (28 U.S.C. § 1367) would allow the federal court to hear the state law theories as well as the federal law theory.  See Exercise Six, part I.B.  P’s other theories are barred by the unfavorable result in the first action.

P might argue that the defamation theory is a separate transaction.  If the defamation occurred at the time of termination, clearly there is a single transaction.  If the defamation occurred later, as in an unfavorable job reference, P might argue the separation in time makes this a separate transaction, and so a separate claim.  We would answer that this is one common nucleus of fact, and a lay person would expect all of it to be tried together.  It is a single transaction, or series of transactions.  Therefore, it is a single claim.  See Restatement (Second) of Judgments § 24(2) (1982), in II.A.3, supra.

Note that the converse court situation might save P’s unpleaded theory.  Should the first action have been brought in state court, with P failing to plead a federal law theory, that theory might be outside the operation of res judicata when the federal theory could not have been brought in state court.  This would apply when the federal theory involved exclusive federal jurisdiction, not concurrent jurisdiction, as in this hypothetical.

This answer is based on a transactional definition of claim.  A primary right‑primary wrong definition would likely produce the opposite result.  See II.A.3, supra.






Q–4. P sues D for punching him in the nose.  P’s proof on damages is not entirely satisfactory, and the jury awards only $2000.  Several months later, P stumbles on additional evidence that supports a new, substantial element of damages.  P sues D for the additional damages.  Does res judicata apply?







Answer to Q–4.

Yes.  P has split his damages, as well as his nose.  Claim preclusion includes all matters of fact and law that were or should have been litigated.  Certainly, all elements of damages arising out of a single tort are included, and are merged into the favorable result in the first action.  This answer is the same under both the transactional approach and the primary right-primary wrong approach since both cases involve injury to the person.

P may be able to obtain some relief by moving to vacate the first judgment on the ground of newly discovered evidence, but that would be a direct attack on the first judgment, and is not relevant to a discussion of res judicata.

B. Issue Preclusion


Q–5. John and Mary Homeowners signed a contract with AAA Builders to construct their dream home.  When the Homeowners moved in, they discovered shoddy work in several rooms and sued AAA Builders for breach of warranty.  The Homeowners obtained a judgment.  Some time later, AAA Builders sold its business to BBB Builders.  BBB studied the books and discovered that not all of the payments from Homeowners had been collected.  BBB Builders sued Homeowners to collect the payments.  Defendant Homeowners defended on the ground of shoddy work.  Does collateral estoppel apply on the issue of the quality of the work?







Answer to Q–5.

Yes.  There is a final, valid judgment.  The parties are the same in both actions (BBB is in privity with AAA as the purchaser of the business).  The claim is different, but the issue of the quality of the work is identical, was actually litigated, and was necessary to the result in the first action.  Issue preclusion/collateral estoppel will apply.

Homeowners might also be able to defend on the ground that BBB Builders’s predecessor in interest AAA Builders failed to plead a compulsory counterclaim (assuming the action was brought in a federal court or a state that has compulsory counterclaims), but that is not a collateral estoppel issue.






Q–6. P Corp. is in the business of selling freezers and frozen meat.  It requires buyers to sign a preprinted, standard form contract.  D signs a contract, but when the quality of the meat is unsatisfactory, refuses to pay.  P Corp. sues on the contract, and D defends that the interest rate on the contract is usurious under state law.  The jury verdict is for D and judgment is entered.  P Corp. later sues D2, another buyer, on the same standard form contract.  D2 pleads that the interest rate is usurious and moves for summary judgment on the grounds of collateral estoppel.  Does collateral estoppel apply?






Answer to Q–6.

Yes.  The hypothetical presents a different claim (P Corp. v. D2 instead of P Corp. v. D) with an identical issue (the usurious rate) that was actually litigated and necessary to the first judgment.  In those states that have abandoned mutuality, collateral estoppel will be applied because the party to be estopped, P Corp., was a party to the first action and had its day in court.  This is defensive collateral estoppel.

The answer would be different in states that retain the doctrine of mutuality, since the parties in the two suits are not the same, and there is no privity between the two defendants, even though they have similar interests.  Also, had the first judgment gone against D, the result could not be used against D2, since D2 was not a party to the first action.






Q–7. Dumper, Inc. Is in the waste disposal business.  Two lakefront property owners on Lake Wishuwerhere sue Dumper, Inc. for disposing of waste in their lake in violation of federal and state waste disposal statutes and regulations.  The defense is that no dumping occurred.  Following trial to the court, the judge finds that the dumping did occur and orders judgment for plaintiffs.  Hearing of this result, the remaining 84 homeowners on the lake join together to file suit against Dumper, Inc. for damages for the unlawful dumping.  Does collateral estoppel apply?






Answer to Q–7.

Yes.  Dumper, Inc. defended the common issue of unlawful dumping and lost.  The issue in these different claims was actually litigated and necessary to the result.  No reason exists to believe that a court would reach a different result in another litigation.  Accordingly, Dumper, Inc. will be collaterally estopped from denying the unlawful dumping even though no mutuality exists.  This is offensive collateral estoppel.

Defendant might argue that unfairness would result because the first action involved only two homeowners and the second involves 84.  This argument likely would not prevent collateral estoppel because the defendant could easily have foreseen that other owners would also seek to enforce their claims and would have had every incentive to defend the first action vigorously.

Defendant might also argue that the second group of owners should not be allowed to lie in the weeds to await the outcome of the first action and then take advantage of a favorable result.  Although a few courts have hinted of requiring such potential additional plaintiffs to join or intervene in the first action, the courts have not insisted on mandatory joinder or intervention.





Q–8. Part 1.  Ten plaintiffs, join permissively to sue D University for gender discrimination in its promotion policies.  Following extensive negotiation, the university allows a consent judgment to be entered against it.  Additional plaintiffs then bring suit against the university for the same promotion policies, and move for partial summary judgment on the issue of discrimination, asserting issue preclusion.  Does issue preclusion/collateral estoppel apply?

Part 2. Same facts as part 1, except D University answers denying any discrimination, and the case goes to trial.  D University concedes the issue following presentation of plaintiffs’ case in chief.  Does collateral estoppel apply?

Part 3. Same facts as in part 1, except D University contests the issue throughout trial, and the jury verdict is for plaintiffs.  Does collateral estoppel apply?






Answer to Q–8, parts 1–3.

Collateral estoppel requires that the issue have been actually litigated.  The facts in parts 1 and 2 show the issue was not fully litigated, so no collateral estoppel can apply in the second action.  In part 3, the issue was fully litigated, so collateral estoppel applies.






Q–9. P sued D Cabco for personal injuries and property damage arising when one of Cabco’s taxicabs collided with P’s car.  Cabco defended on two grounds:  1) the driver was an independent contractor instead of an agent, so no negligence could be imputed to it, and 2) the driver was not negligent.  By special verdict, the jury found that the driver was an agent, but was not negligent, so judgment was entered for D Cabco.  A second suit had been filed before the first action went to trial;  it involves a collision between the cab of the same driver and P2.  P2 now argues that collateral estoppel prevents D Cabco from denying the agency of the driver.  Does issue preclusion/collateral estoppel apply?






Answer to Q–9.

No.  The issue of the agency of the cab driver was not necessary or essential to the result in the first action.  D Cabco won, so issues found against it by definition cannot have been necessary to the result.  Issue preclusion/collateral estoppel cannot apply.






Q–10. P purchased a ten-year-old used car “as is” from Dealer for $995.  A week later, the radio stopped working and P paid $125. to fix it.  He sued Dealer in small claims court for the $125., alleging that Dealer should have a 30–day implied warranty on every car it sells.  Dealer denied any implied warranty and sent its sales manager to court without a lawyer to defend the action.  P won the $125.  A year later, P2 purchased a used car “as is” from Dealer for $19,995, and later sued Dealer for $12,000 for various defects in the car on a theory of 30–day implied warranty.  Does collateral estoppel apply?






Answer to Q–10.

Maybe.  The elements of collateral estoppel are satisfied in this hypothetical:  a final, valid judgment;  the same party to be estopped (offensive collateral estoppel);  a common issue in the two actions on different claims;  issue actually litigated;  issue necessary to the result.  A court will, however, refuse to apply collateral estoppel when unfairness would result.

Defendant Dealer will argue that the first action involved such a small amount that it had insufficient incentive to litigate fully—it could not have foreseen the substantial consequences in later actions.  Also, it was not represented by an attorney in the first action;  granted, this was its own choice, but was again a function of the small amount involved.

P would argue that the small amount in the first action does not control because Dealer should have realized that the result could have consequences beyond the individual action.  Even though there is disagreement, many jurisdictions recognize small claims judgments can support preclusion.  Similarly, the absence of legal representation in the first action was a decision by Dealer.

Given the small amount and the absence of legal representation, fairness may prevent application of collateral estoppel in this hypothetical, but the result is not clear.


You are now ready for further work in the preclusion doctrines in CIV 17: Preclusion.  The computer-assisted exercise is self-contained.  The estimated completion time for CALI CIV 17 is one-and-one-half hours, although this exercise can be divided into segments to be completed in separate sittings.


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