Who Is Bound

Who Is Bound

Issue preclusion holds a person to a result only if that person had a hand in reaching it. The earlier sections asked what the first court decided and whether the process behind that decision was fair. This unit asks who may be held to the decision, and the answer begins narrowly: a party, or someone so closely tied to a party that the law treats the two as one. The cases call that second person a privy.

Preclusion works by letting the first case stand in for a hearing the bound person would otherwise receive in the second. The substitution is fair only when the person actually had the first hearing. A stranger to the first suit chose no lawyer, offered no evidence, cross-examined no witness, and took no appeal, so that suit cannot replace a hearing the stranger never had. Resemblance does not close the gap. A stranger who faces the same question as a litigant, and who may feel the judgment’s effects, is still not bound, because someone else fought the contest. The full-and-fair-opportunity safeguard from the previous section asked whether a party’s procedures and incentives were adequate; for a stranger the safeguard never comes into play, because no opportunity existed.

The limit survives the abandonment of mutuality, because mutuality and this rule answer different questions. Mutuality asks who may invoke a judgment; this unit asks who may be bound by one. The modern relaxation widened the group that may rely on a prior judgment and left the group that may be held to it where it was.¹ The later sections on nonmutual use take up who may invoke a result.

Party status also settles less than it seems to. It tells you whether a judgment can reach a person; it does not tell you what the judgment decided against that person, and the earlier requirements still apply. An organization that litigated the taxability of its 2007 income as a religious group is a party again in a 2008 suit over the same kind of activity, yet the 2007 finding does not bind it, because the character of its activities may have changed and the issue is not identical.²

Two subsections follow. The first sets the baseline and the six exceptions to it. The second examines the exception that Montana v. United States developed, under which a nonparty that controlled the first suit is bound by its result.

Parties and Privies

Taylor v. Sturgell begins with the person left out of the first case. A nonparty generally has not had a “full and fair opportunity to litigate” what that case settled, so binding the person runs against the “deep-rooted historic tradition that everyone should have his own day in court.”³ The Court has often repeated the corollary: one is not bound by a judgment in personam in litigation in which he is not designated as a party or to which he has not been made a party by service of process.⁴ Due process stands behind the tradition, since a judgment cannot bind a litigant who was neither a party nor a privy and so never had an opportunity to be heard.⁵ For issue preclusion, the consequence is that it cannot be invoked against one who did not participate in the prior adjudication,⁶ and no party is precluded merely because someone else litigated an issue, apart from the narrow privity and close-relationship situations listed below.⁷

The rule gives each person one day in court. A party who litigated an issue and lost has spent that day and can be held to the result; a person who stayed out of the case still has his. A lawsuit consists of choices that belong to the litigant, such as which lawyer to hire, how much to spend, which theory to press, and whether to appeal, and a different litigant might choose differently. Consider La Salle and Cortez. A court may hold La Salle to an issue decided in the earlier case under traditional estoppel, but it may not hold Cortez, a new party, to that decision. Binding Cortez would save effort just as binding La Salle does, yet efficiency is only one goal of the procedural system, and here it gives way to fairness toward new parties.⁸

Because the protection turns on the bound person’s own history in the first case, preclusion can run one way even when the facts stay the same.

The railroad’s loss binds the railroad, but the railroad’s win cannot bind the husband. Courts agree on the second result whether they attribute it to fairness or to due process, and the first result belongs to the sections on nonmutual use.⁹ Justice Traynor’s opinion in Bernhard v. Bank of America, which began the abandonment of mutuality, drew the same line. A person is bound by earlier litigation only if he was a party or in privity with a party, but the party who raises the plea need not have been.¹⁰

The Court calls the rule against nonparty preclusion hardly in doubt, but it recognizes exceptions and groups them into six categories.¹¹

• A nonparty who agreed to be bound by a prior action is bound by it, because that person chose to let another’s case stand in for his own.¹²
• A nonparty with a preexisting substantive legal relationship to a party can be bound. The qualifying relationships include preceding and succeeding owners of property, bailee and bailor, and assignee and assignor, and the exceptions grew as much from the needs of property law as from the values of preclusion by judgment.¹³
• A nonparty adequately represented by someone with the same interests who was a party can be bound. The examples are properly conducted class actions and suits brought by trustees, guardians, and other fiduciaries.¹⁴
• A nonparty who assumed control over the litigation is bound, because she has had the opportunity to present proofs and argument. The next subsection develops this exception.¹⁵
• A person who sues as a proxy for a bound party is bound as well. Preclusion applies when someone who took no part in the first case later sues as the designated representative or agent of a party who was bound.¹⁶
• A nonparty can be bound by a special statutory scheme, such as bankruptcy or probate proceedings, provided the proceedings comport with due process.¹⁷

Each category requires a concrete link between the nonparty and the first case, whether consent, a legal tie, adequate representation, control of the suit, acting for a bound party, or a statute. That requirement keeps the exceptions narrow. The property category shows the link at work.

Courts usually describe a finding that a category applies by saying that the nonparty is in privity with the party. A person who actually controls the first suit is found in privity with the named parties, and appointed or legal representatives, such as guardians or administrators, are in privity with the persons they represent.¹⁸ The word names a conclusion and supplies no test, so a sound analysis says which category forges the tie.

The narrowness of the categories decided Taylor itself. Herrick sued under the Freedom of Information Act and lost, and Taylor, a friend who wanted the same records, then sued on his own. The courts below held Taylor bound under “virtual representation,” a doctrine that several circuits had adopted in varying forms and that, in broad terms, treated a nonparty and a party with closely aligned interests as one for preclusion.¹⁹ The Supreme Court had never addressed that doctrine, and it measured the doctrine against its established precedent on nonparty preclusion.²⁰ Virtual representation did not survive the comparison. A nonparty’s resemblance to a party, even when paired with a close relationship, does not make the party’s lawsuit the nonparty’s own day in court.²¹

Virtual representation would also operate like a class action without a class action’s safeguards. A Rule 23 judgment reaches absent members because a court has certified the class, and in damages classes because members receive the best practicable notice and a chance to opt out.²² Those protections make the representative’s suit a fair substitute for each member’s own appearance, and when notice or the chance to opt out is missing, absent members are not bound.²³ Hansberry v. Lee shows the constitutional edge of the point. The Illinois courts treated an earlier class suit over a restrictive covenant as binding on owners who were not parties. The Supreme Court asked whether that ruling denied them due process under the Fourteenth Amendment, and it held that it did, because the earlier suit did not adequately represent them.²⁴

The same reasoning protects a person who opts out of a certified class. An opt-out plaintiff is not a party to the class action, and collateral estoppel cannot bind a person who was neither a party nor a privy to the prior suit, so a defendant that wins the class case cannot hold the opt-out to the result.²⁵

Nonparty Control

A nonparty that takes over a lawsuit in which it has a direct financial or proprietary interest cannot later reopen what that lawsuit decided. Montana v. United States so held, reasoning that the interests supporting preclusion between parties are “similarly implicated” when such a nonparty seeks to redetermine issues previously resolved.²⁷ Taylor v. Sturgell lists the rule as the fourth of its six exceptions to the rule against nonparty preclusion, beside consent, preexisting legal relationships, and adequate representation.²⁸

Montana drew on Souffront v. Compagnie des Sucreries, which held that the persons for whose benefit and at whose direction a cause of action is litigated cannot be called strangers to it. One who prosecutes or defends a suit in another’s name to establish and protect his own right is, in the Court’s words, “as much bound . . . as he would be if he had been a party to the record.”²⁹ A suit in someone else’s name is a way of using a court without appearing on the caption. If the caption alone decided who was bound, a person with a real stake could pick a nominal plaintiff, run the suit, keep the victory if it came, disclaim the defeat if it did not, and then litigate the same question again in its own name. Treating the controlling nonparty as a party closes that route.

The rule has two parts, and each answers a different worry. Control answers the fairness concern behind the baseline rule: a person who directs a suit has had “the opportunity to present proofs and argument,” and so has “had his day in court” without being a formal party.³⁰ The requirement of a direct financial or proprietary interest explains why anyone would direct a suit in another’s name. The outcome touches the nonparty’s own money or property, so it is litigating for itself and not helping a friend. Together the two parts describe someone with the stake of a litigant and the powers of one.

Montana shows what control looks like in practice. The state suit, Kiewit I, was a contractor’s challenge to a Montana tax, and the record showed that the United States had done each of the following.³¹

• It required the lawsuit to be filed.
• It reviewed and approved the complaint.
• It paid the attorneys’ fees and costs.
• It directed the appeal from the state trial court to the Montana Supreme Court.
• It appeared and submitted a brief as amicus in the Montana Supreme Court.
• It directed the filing of a notice of appeal to the United States Supreme Court.
• It effectuated the contractor’s abandonment of that appeal on the advice of the Solicitor General.

The list covers every stage of the case. The Government started the suit, approved its pleading, financed it, steered it through two levels of review, and ended it. The Court concluded that the United States, though not a party, had “a sufficient ‘laboring oar’ in the conduct of the state-court litigation to actuate principles of estoppel.”³² The opinion treats the combination as enough and singles out no one act as the necessary one, so an answer applying the rule should gather every fact of initiating, approving, funding, and directing. Montana then turned to three further inquiries: whether the issues in the new case were in substance the same as those resolved in Kiewit I, whether controlling facts or legal principles had changed significantly since the state-court judgment, and whether other special circumstances warranted an exception to the normal rules of preclusion.³³

The label for this preclusion fixes how far it reaches. The Court placed nonparty control under collateral estoppel, not res judicata, because res judicata presupposes identity between causes of action, and the cause of action a nonparty has vicariously asserted differs by definition from the one it later litigates in its own right.³⁴ The controlling nonparty is therefore treated like a party only on the issues the first court actually and necessarily decided, and any claim or ground that no one litigated remains open to it.

Sharing a party’s interest does not bind a nonparty, and Taylor shows why the instinct to bind it fails. Taylor wanted the same records as a friend who had already lost, and the courts below held him bound on a theory of virtual representation. The Supreme Court rejected that theory, because resemblance between a nonparty and a party, even with a close relationship, does not make the party’s suit the nonparty’s own day in court.³⁵ Actual control is a different matter. A person who actually controls the first suit is found in privity with the named parties, as when an insurance company controls the defense of its insured.³⁶

The two owners differ in one fact, and Montana’s reasoning turns on it: what the owner did in the first suit. Wanting a particular outcome and facing the same legal question describe a person’s position, while starting the suit, approving the papers, paying the bills, and directing the appeals describe a person’s conduct. Only conduct supplies the day in court that preclusion presupposes.