Nonmutual Issue Preclusion

Nonmutual Issue Preclusion

Traditionally, issue preclusion worked only between the same two sides. Under the mutuality doctrine, neither party could use a prior judgment as an estoppel against the other unless both parties were bound by the judgment.¹ Many courts, the federal courts among them, have abandoned that requirement. The result is nonmutual issue preclusion: a stranger to the first case invokes its finding against a party who litigated the issue there.²

Two labels sort the nonmutual cases. Offensive use is use by a stranger to the first action who is a plaintiff in the second action; defensive use is use by a stranger who is a defendant in the second.³ Courts accept defensive use more readily than offensive use.⁴

One rule outlasted mutuality. The party against whom preclusion is asserted must have been a party to the first suit and so have had a chance to litigate the issue there.⁵ The party asserting preclusion need not have been.

This section traces how mutuality arose and fell, separates defensive use from offensive use, and then takes up the Seventh Amendment objection that Parklane Hosiery Co. v. Shore, the leading case on offensive use, also decided.

Mutuality and Its Demise

Parklane Hosiery Co. v. Shore describes the rule that nonmutual preclusion had to overcome. The mutuality doctrine rested on the premise that it is somehow unfair to let a party use a prior judgment when he would not himself be bound by it.⁶ In practice, the doctrine gave a party who had litigated and lost an opportunity to relitigate identical issues against new parties.⁷

A lease dispute shows the old rule at work. La Salle and Cartier litigate whether a lease provision is valid, and La Salle wins. La Salle took the risk that an adverse finding would bind him in later suits, so under mutuality he, and only he, had earned the right to rely on a favorable one.⁸ Cortez, a stranger to that suit, took no such risk, because an adverse finding would not have bound him had Cartier proved the provision valid. Mutuality therefore barred Cortez from taking advantage of La Salle’s win.⁹

A second justification was predictability. If findings affect only later suits against the same adversaries, litigants can usually anticipate what an adverse decision will cost them. If estoppel is open to new parties, litigants may feel forced to overlitigate the first action for fear of risks they cannot see.¹⁰

The rule’s cost shows most clearly when the party who lost the first case is the one who started it. Suppose Jones sues Smith over a patent and loses when the jury finds that he does not own it. Jones then sues A, B, and C for infringing the same patent. None of them was a party to the first suit, and one is not bound by a judgment in a litigation to which one was not made a party. A could not have been bound had Jones won, so mutuality denies A the use of Jones’s loss, and B and C are in the same position. Jones is free to press the same claim against as many new adversaries as he likes, which is inefficient and invites wildly inconsistent rulings.¹¹

Critics attacked the doctrine almost from the start. It ignored the obvious difference between a party who has never litigated an issue and a party who has fully litigated it and lost.¹² The break came in California, in Bernhard v. Bank of America. Mrs. Bernhard claimed that funds held by Cook, the executor of an estate, belonged to the estate, while Cook claimed the decedent had given him the funds. The probate court held that they were a gift. Bernhard then sued the bank that had held the funds and paid them to Cook, again alleging that they belonged to the estate, and the bank, which had not been a party to the probate proceeding, asserted estoppel.¹³ The California Supreme Court approved the defense. That path-breaking decision opened the door for many, though not all, other courts to abandon mutuality on the same reasoning.¹⁴

Justice Traynor’s opinion moved the fairness question from the person invoking the judgment to the person it was used against. “Just why a party who was not bound by a previous action should be precluded from asserting it as res judicata against a party who was bound by it,” he wrote, “is difficult to comprehend.”¹⁵ He did not dwell on the free ride the bank took from Cook’s victory. He emphasized that Bernhard, the party against whom estoppel was asserted, had been a party to the first action and had a full and fair opportunity to litigate there, and he saw no reason to let her relitigate the decided issue by simply switching adversaries.¹⁶

The Supreme Court took the same step for the federal courts in Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation. The Foundation sued Blonder-Tongue for infringing its antenna patent. It had earlier sued a different laboratory on the same patent, and the jury in that case had found the patent invalid. Blonder-Tongue, a stranger to the first suit, invoked issue preclusion to stop the Foundation from claiming the patent was valid, and the Supreme Court approved that use.¹⁷ The Court reversed its long-standing rule allowing such relitigation, citing the unfairness and waste of judicial resources that flow from permitting “repeated litigation of the same issue as long as the supply of unrelated defendants holds out.”¹⁸ Like Bernhard, Blonder-Tongue conditioned preclusion on the estopped party’s full and fair opportunity to litigate the issue in the first action.¹⁹ The Court also stressed the burdens patent suits place on the courts, but the lower federal courts have not confined the holding to patents. They have applied nonmutual estoppel widely, at least where the parties’ postures in the two actions resemble those in Blonder-Tongue or Bernhard.²⁰

What survives is an asymmetry. A wife wins a negligence finding against a railroad after a crossing collision, and her husband, who took no part in her suit, sues the railroad over the same collision. Where mutuality has been abandoned, the railroad litigated and lost, so it can be held to the finding.²¹ Now change one fact: the railroad won the first suit. It cannot use that victory against the husband, because he never had an opportunity to litigate. Whether courts attribute the result to simple fairness or to due process, all agree that a party who has never had an opportunity to litigate an issue cannot be precluded from doing so.²²

One question therefore resolves most issue preclusion problems: has the party against whom preclusion is sought had a chance to press its claim or defense in some prior proceeding?²³ In every nonmutual situation the estopped party must have been a party to the first suit, and the crucial inquiry, emphasized in Bernhard, is whether that party litigated the issue there.²⁴

Courts have not abandoned mutuality uniformly. Res judicata and collateral estoppel are judicial doctrines whose scope varies from jurisdiction to jurisdiction, so a lawyer must examine the precedents of the jurisdiction where suit is brought.²⁵ The Michigan Supreme Court, for one, wrote in 1990 that “[m]utuality of estoppel remains the law in this jurisdiction,” a statement quoted in an opinion in Baker v. General Motors Corp.²⁶

The first jury’s verdict establishes negligence even if it was a general verdict, because negligence is an element of a personal injury claim and no plaintiff’s judgment could exist without it.²⁷ The same is true of a fact the court expressly found, such as the driver’s lack of a valid license.²⁸

Because preclusion rules differ across systems, the first step in a nonmutual problem is to identify whose law governs. A state-court judgment receives, in every court in the United States, the same full faith and credit it has by law or usage in the courts of the state that rendered it.²⁹ A federal court asked to give nonmutual effect to a state judgment therefore asks what that state’s courts would allow, and if the state still requires mutuality, the federal court will not let a stranger invoke the judgment either. The preclusive effect of a federal-court judgment, by contrast, is determined by federal common law, and in federal-question cases the federal courts help develop uniform federal rules, subject to due process limits.³⁰ The later section on which preclusion law applies develops these choices.

Defensive Nonmutual Use

In defensive nonmutual use, a defendant who was a stranger to the first case uses the plaintiff’s earlier loss to stop the plaintiff from proving the same issue again.³² The pattern involves two suits. In Suit 1, a plaintiff sues one defendant and loses on an issue. In Suit 2, the same plaintiff sues a new defendant, who invokes the earlier loss to prevent the plaintiff from establishing a fact that he could not establish in Suit 1.³³ The label “defensive” describes the invoking party’s posture in Suit 2, and “nonmutual” describes that party’s absence from Suit 1.

Bernhard fits the pattern. Mrs. Bernhard was essentially the plaintiff in the probate proceeding, trying to establish the estate’s right to the funds Cook held. She was the plaintiff again against the bank, trying to prove the same point in order to recover. The bank asserted estoppel defensively to prevent her from proving an essential element of her claim.³⁴ Blonder-Tongue has the same shape: the Foundation lost on the validity of its patent against one laboratory and then tried to establish validity against another.

Three reasons support letting the stranger use the shield. The first is economy. A defendant forced to defend a claim the plaintiff has already fully and fairly litigated and lost spends time and money on a decided issue, and the plaintiff’s own allocation of resources is open to question when repeated litigation can continue “as long as the supply of unrelated defendants holds out.”³⁵ The second is fairness to the estopped plaintiff, who usually chose the forum and the defendant in the first suit and had his day in court in the forum of choice, so binding him hardly seems unfair.³⁶ The third is consistency. Without preclusion, a losing plaintiff could press the same claim against new adversaries and risk wildly inconsistent rulings.³⁷ The Court in Blonder-Tongue relied on the first of these reasons when it described repeated litigation of one issue as reflecting “the aura of the gaming table.”³⁸

Defensive use is the situation courts accept most readily, and the trend has favored it.³⁹

Reverse the sequence and the answer changes. Suppose the Foundation had won the first suit, with a jury finding the patent valid, and then sued Blonder-Tongue. The Foundation could not bind Blonder-Tongue to that finding. Blonder-Tongue never litigated validity. Some other defendant did and lost, perhaps with less at stake or weaker representation, and Blonder-Tongue would naturally feel that it deserved a chance to prove the patent invalid.⁴⁰ The answer is the same where mutuality is gone, because abandonment changed who may invoke a judgment and left in place the requirement that the estopped party have been a party who litigated the issue.⁴¹

Even the favorable direction depends on a real first hearing. The requirement of determining whether the estopped party had a full and fair opportunity to litigate is, in the Court’s words, “a most significant safeguard.”⁴² The party invoking estoppel bears the burden of showing that the issue was fully litigated, and a court applies estoppel only if, after reviewing the first suit, it is convinced that the earlier plaintiff had the incentive and opportunity to litigate the issue tenaciously.⁴³

Both plaintiffs lost an ownership finding and then sued a stranger. What separates them is the quality of the first hearing and the plaintiff’s reason to fight in it, the incentive and procedure safeguards taught earlier in this chapter, now applied against a plaintiff.

Offensive Use After Parklane

Offensive use reverses the roles. A new plaintiff borrows a finding from an earlier action to impose liability on a party who was a defendant there, and the new plaintiff, a stranger to the first suit, was never at risk of being bound by it.⁴⁵ Parklane Hosiery Co. v. Shore is the leading decision on that use. It approved offensive nonmutual preclusion with caution and left the decision in each case to the trial judge’s discretion. Courts accept offensive use less readily than defensive use.⁴⁶

The asymmetry that results has made some courts and commentators uneasy, and Parklane explores the problem.⁴⁷ The question presented was whether a party who has had issues of fact adjudicated adversely to it in an equitable action may be collaterally estopped from relitigating the same issues before a jury in a later legal action brought by a new party.⁴⁸

The petitioners had lost an action brought by the SEC, which sought an injunction, on the question whether a proxy statement was materially false and misleading.⁴⁹ The respondent, Shore, then moved for partial summary judgment against them, asserting that they were collaterally estopped from relitigating the issues resolved against them in the SEC action.⁵⁰ Apart from the Seventh Amendment, the threshold question was whether a litigant who was not a party to the prior judgment may use it offensively to prevent a defendant from relitigating issues resolved in the earlier proceeding.⁵¹

The stakes for Shore were high. Estoppel would save him the time and expense of litigating falsity again and, of greater value, would establish an essential fact in his case without any risk of losing on it. Whether the proxy statement was false and misleading was the central issue in the case.⁵²

Both offensive and defensive use involve a party who has litigated and lost, yet the Court saw a difference in incentives.⁵³ Offensive use creates “precisely the opposite incentive” from defensive use. A plaintiff can rely on a previous judgment against the defendant but will not be bound if the defendant wins, so the plaintiff has every reason to adopt a “wait and see” attitude and hope that another plaintiff’s action ends in a favorable judgment.⁵⁴ The rule can therefore reward waiting and tends to multiply suits instead of reducing them. A second concern is fairness to the defendant, who may have been sued for small or nominal damages and so have had little incentive to defend vigorously, particularly if future suits were not foreseeable.⁵⁵ And unlike the plaintiff who loses in the defensive setting, the defendant bound offensively did not choose the forum or the opponent in the first suit.⁵⁶

The Court answered with a middle course. It declined to bar offensive collateral estoppel and instead gave trial courts broad discretion to decide when it should apply.⁵⁷ The general rule is that a trial judge should not allow offensive estoppel where a plaintiff could easily have joined the earlier action or where its application would be unfair to a defendant.⁵⁸

On the facts, the Court found no obstacle. The petitioners had received a full and fair opportunity to litigate in the SEC action. Estoppel would not reward a plaintiff who could have joined, since the respondent probably could not have joined the SEC’s injunctive action even had he wished to. And the Court saw no unfairness to the petitioners. They were therefore estopped from relitigating whether the proxy statement was materially false and misleading.⁵⁹ The next section examines each fairness screen in turn: wait-and-see plaintiffs, the foreseeability of later suits, inconsistent prior judgments, and procedural advantages in the second case.

Federal courts apply the same approach in ordinary cases. When a new plaintiff invokes estoppel to establish an issue decided against the defendant in an earlier suit, the plaintiff’s absence from the first action does not defeat the estoppel, because the party against whom it is invoked was there and litigated the issue.⁶⁰

Greg should win that motion. Dave had a full and fair opportunity to litigate defectiveness in Fred’s case, and $500 was modest but enough to motivate a defense. No inconsistent judgments exist, and Greg could not realistically have joined Fred’s small case. Estoppel saves judicial resources without unfairness to Dave, and it settles only defectiveness: Greg must still prove that the defect caused his own injuries and the extent of his damages.⁶¹

The difference between the second passenger and Shore is joinder. The second passenger could have joined and chose to wait, while Shore, on the Court’s reading, probably could not have joined the SEC’s injunctive action.⁶²

The doctrine does not run in the other direction. Had Parklane won the SEC case and obtained a finding that the proxy statement was accurate, Shore could not be bound by it. He never litigated the issue, and as a matter of constitutional due process a person cannot be precluded merely because someone else litigated and lost on it. Each litigant gets one opportunity to prove her case.⁶³

Not everyone has accepted the Court’s cautious embrace of offensive nonmutual preclusion. Critics point to “plaintiff shopping”: attorneys for numerous claimants might agree to send the strongest case to judgment first, so that the other claimants can ride the successful judgment through nonmutual offensive preclusion.⁶⁴ Whether Parklane’s joinder rule answers that objection is a question the next section pursues.

Preclusion and the Jury Right

After holding that the general law of collateral estoppel permitted Shore’s offensive use, Parklane faced a second question: whether using the SEC’s judgment would violate the petitioners’ Seventh Amendment right to a jury trial.⁶⁶ The objection had force. In general there is no right to a jury trial of historically equitable claims such as injunctions, while there is a right in actions that historically would have been legal.⁶⁷ The petitioners were not entitled to a jury in the SEC action,⁶⁸ yet they would have been entitled to a jury on whether the proxy statement was materially false and misleading had the SEC action never been brought.⁶⁹ Offensive estoppel took from them a jury on an issue a jury would otherwise have decided.

The Court answered from history. It began from the premise that “[t]he thrust of the [Seventh] Amendment was to preserve the right to jury trial as it existed in 1791,” and it observed that at common law a litigant was not entitled to have a jury determine issues that a chancellor in equity had already adjudicated.⁷⁰ The rule follows from what the jury right protects: “No one is entitled in a civil case to trial by jury unless and except so far as there are issues of fact to be determined.”⁷¹ Once a court with power to decide has found a fact after a full contest, no contested fact remains for a later jury to find.

Two of the Court’s own decisions point in different directions on this question, and they are easy to confuse. In Beacon Theatres, Inc. v. Westover, the plaintiff sought a declaratory judgment that its arrangements with the defendant did not violate the antitrust laws and an injunction against an antitrust suit. The defendant counterclaimed for treble damages and demanded a jury on the issues common to the legal and equitable claims. The Court of Appeals upheld the denial of that request, but the Supreme Court reversed.⁷² Katchen v. Landy then confirmed that Beacon Theatres “enunciated no more than a general prudential rule.” A bankruptcy court sitting as a statutory court of equity could decide equitable claims first, even though the same facts would have been jury-triable had the legal claims been adjudicated first.⁷³ Both cases concern the order in which legal and equitable claims pending together are tried. Parklane presented no such choice. The SEC action was a separate suit that Shore probably could not have joined, and a statute bars consolidating a private action with an SEC action without the SEC’s consent.⁷⁴

The majority then dealt with the petitioners’ rigid reading of the Amendment. The Seventh Amendment “has never been interpreted in the rigid manner advocated by the petitioners.” Many procedural devices developed since 1791 have diminished the civil jury’s historic domain without violating the Amendment, and the directed verdict is one example.⁷⁵ More important, the jury right does not depend on mutuality. A litigant who has lost because of adverse factual findings in an equity action is equally deprived of a jury trial whether he is estopped from relitigating the facts against the same party or a new one. In either case, the party against whom estoppel is asserted has litigated questions of fact and has had them determined against him in an earlier proceeding.⁷⁶

Justice Rehnquist dissented on Seventh Amendment grounds.⁷⁷ In his view, nonmutual estoppel is “a substantial departure from the common law,” and its use in this case “completely deprives petitioners of their right to have a jury determine contested issues of fact.” He refused to treat that loss as a mere change in “procedural incident or detail.”⁷⁸ The directed verdict and summary judgment survive the Amendment, he reasoned, only because they descend from common-law antecedents: a similar directed verdict existed in 1791, and summary judgment resembles the demurrer to the evidence. Each accomplishes nothing more than could have been done at common law by a more cumbersome procedure.⁷⁹ The majority asks what the jury is for, which is finding facts that remain contested, and concludes that the function has been spent. The dissent asks whether the device has a lineage in 1791 practice, and concludes that it has none.

The dissent also raised a separate, prudential objection, and an exam answer should keep the two apart. Even apart from the Constitution, it thought it “unfair” to apply offensive collateral estoppel where the party to be estopped has not had an opportunity to have the facts of his case determined by a jury.⁸⁰ The majority took the opposite view, treating the presence or absence of a jury as factfinder as “basically neutral,” quite unlike the necessity of defending the first lawsuit in an inconvenient forum.⁸¹ A defendant’s lack of a jury in the first case therefore does not by itself make offensive estoppel unfair. A stem that pairs an SEC bench judgment with a later private jury demand calls for two answers: the Seventh Amendment does not bar the estoppel, and the trial court’s discretion over fairness remains available.