440 U.S. 147 (1979)
In 1971, Peter Kiewit Sons' Co., the contractor on a federal dam project in Montana, brought suit in state court contending that the Montana gross receipts tax unconstitutionally discriminated against the United States and the companies with which it dealt.1 The litigation was directed and financed by the United States.2 Less than a month after the state suit was filed, the Government initiated this challenge to the constitutionality of the tax in the United States District Court for the District of Montana.3 On stipulation by the parties, the instant case was continued pending resolution of the state-court litigation.4
That litigation concluded in a unanimous decision by the Montana Supreme Court sustaining the tax in Peter Kiewit Sons' Co. v. State Board of Equalization, 161 Mont. 140, 505 P. 2d 102 (1973) (Kiewit I).5 The contractor subsequently filed a notice of appeal to this Court, but abandoned its request for review at the direction of the Solicitor General.6 It then instituted a second action in state court seeking a refund for certain tax payments different from those involved in Kiewit I.7 On determining that the contractor's second legal claim was, in all material respects, identical to its first, the Montana Supreme Court invoked the doctrines of collateral estoppel and res judicata to affirm the dismissal of the complaint in Peter Kiewit Sons' Co. v. Department of Revenue, 166 Mont. 260, 531 P. 2d 1327 (1975) (Kiewit II).8
After the decision in Kiewit II, a three-judge District Court heard the instant case on the merits.9 In a divided opinion, the court concluded that the United States was not bound by the Kiewit I decision, and struck down the tax.10 The Supreme Court noted probable jurisdiction.11
Whether the United States is collaterally estopped from challenging the constitutionality of Montana's gross receipts tax by the prior state-court judgment in Peter Kiewit Sons' Co. v. State Board of Equalization?12
A nonparty who assumes control over litigation in which it has a direct financial or proprietary interest is bound by the judgment under principles of collateral estoppel.13 The person for whose benefit and at whose direction a cause of action is litigated cannot be said to be a stranger to the cause.14
Yes. The United States exercised control over the Kiewit I litigation by requiring the lawsuit to be filed, reviewing and approving the complaint, paying the attorneys' fees and costs, directing the appeal from State District Court to the Montana Supreme Court, appearing and submitting a brief as amicus in the Montana Supreme Court, directing the filing of a notice of appeal to this Court, and effectuating Kiewit's abandonment of that appeal on advice of the Solicitor General.15 These actions demonstrate that the United States had a sufficient laboring oar in the conduct of the state-court litigation to actuate principles of estoppel.16 Because the United States controlled the prior litigation, normal rules of preclusion bar relitigation here.17
The United States is collaterally estopped from challenging the constitutionality of the tax.18
Related opinions on this issue
Justice White dissented from the application of collateral estoppel.19 He maintained that the principle must be confined to situations where the matter raised in the second suit is identical in all respects with that decided in the first proceeding and where the controlling facts remain unchanged.20 In his view, the modification of the significant facts rendered the prior state determination obsolete at least for future purposes.21
Therefore, the Government was free to litigate its constitutional challenge in federal court.22
Whether changes in controlling facts or legal principles since the state-court judgment render collateral estoppel inapplicable?23
No. Although the United States altered its policy after Kiewit I to require Montana contractors to seek all available refunds and credits, the Montana Supreme Court did not rely on the washout potential in its constitutional analysis in Kiewit I.26 The court focused instead on the rationality of the classification between public and private contractors and on the parity of treatment between the United States and other public contractors.27 Kiewit II confirmed that the offset possibility was an inconsequential fact too insubstantial to warrant relitigation of the statute's constitutionality.28 No change in controlling legal principles occurred between Kiewit I and the instant suit, as the Government's amended complaint replicated in substance the legal argument advanced by the contractor's complaint in Kiewit I.29
Changes in controlling facts or legal principles since the state-court judgment do not render collateral estoppel inapplicable.30
Whether special circumstances justify an exception to the normal rules of preclusion in this case?31
Exceptions to collateral estoppel for unmixed questions of law in successive actions involving substantially unrelated claims or where a party has not had a full and fair opportunity to litigate do not apply when the legal demands of the litigation are closely aligned in time and subject matter and the party has freely and without reservation submitted its federal claims for decision by the state courts.32
No. The legal demands of this litigation are closely aligned in time and subject matter to those in Kiewit I.33 The Government freely submitted its federal claims for decision by the state courts and had them decided there.34 No unfairness or inadequacy in the state procedures was alleged.35 Considerations of comity as well as repose therefore militate against redetermination of issues in a federal forum at the behest of a plaintiff who has chosen to litigate them in state court.36
The Government had a full and fair opportunity to press its constitutional challenges in Kiewit I.37
No special circumstances justify an exception to the normal rules of preclusion in this case.38
Related opinions on this issue
Justice Rehnquist joined the Court’s opinion on the customary understanding that its references to law review articles and drafts or finally adopted versions of the Restatement of Judgments are not intended to bind the Court to the views expressed therein on issues not presented by the facts of this case.39