Applying the Elements

Applying the Elements

Every issue preclusion problem opens with a question that comes before any element: whose preclusion law governs the first judgment? For a state judgment, 28 U.S.C. § 1738 answers it. A state court's records and judicial proceedings receive the same full faith and credit in every court in the United States that they receive in the courts of the rendering state.¹ A court enforcing a state judgment therefore applies the rendering state's rules, whatever its own rules provide. A federal judgment follows a different path, traced in the preceding subsections: federal common law measures a federal-question judgment, and a federal judgment rendered in diversity takes the preclusion law of the state where the federal court sat.

Fixing the source first matters because the later steps raise questions that different systems answer differently. Whether a stranger to the first case may invoke its result at all is one of them. A student who reaches for the enforcing court's own rules out of habit goes wrong in exactly the cases where the choice matters.

Once the governing law is fixed, the analysis tests the showing that many courts take from Restatement (Second) of Judgments §§ 27 and 28. The issue is the same one decided in lawsuit one; it was actually litigated there; the first judgment is a valid final judgment, or final enough; the issue was necessarily decided; the party to be bound was a party or in privity with a party; and that party had a full and fair opportunity to litigate.² Courts vary widely in how they phrase, order, and acknowledge these requirements, so a working analysis groups them by what each one examines: what the first court did with the issue, who would be held to the result, and whether using the result is fair to someone who took no part in the first case. The fairness inquiries come last because they test a determination that already meets the elements. Taken up earlier, they invite the error of calling a finding unfair when the real defect is that the first court never made it. And because every question is asked issue by issue, one earlier judgment can bind the parties on some issues in the second case and leave the rest open for trial.

Steps two through six examine the first judgment, step seven examines the person to be bound, and step eight arises only when the party invoking preclusion took no part in lawsuit one. When the same two parties meet again, step eight drops out. Step two does the sorting that makes partial preclusion possible: a matching issue can be conclusive while the second case's other issues remain open for trial. Step seven keeps apart two ideas that students often merge. Being a party answers who may be bound; the fairness inquiry asks whether this party had a real chance and a real reason to fight.

Bulger's car loan: every element met

Bulger's car loan runs the sequence on facts where every element is met. First Bank sued Billy Bulger in a Maryland state court for missing the January through March payments and sought to repossess his car. Bulger denied nonpayment and answered that the loan agreement was invalid for lack of required disclosures. After a jury trial with evidence on both points, the jury returned a verdict for the Bank, and the court entered judgment.³ The Bank now sues Bulger over the August through December payments. Bulger responds that claim preclusion bars the second suit and, further, that the loan agreement is invalid. A Maryland court rendered the first judgment, so Maryland preclusion law governs; assume that Maryland follows the Restatement (Second) approach.

The claim preclusion argument fails at once. Claim preclusion reaches claims that were asserted and transactionally related claims that could have been asserted, and the later installments were not yet due while the first suit was pending. The August through December claim is new.⁴

The Bank answers the invalidity defense with issue preclusion, and each step supports it. Both suits turn on the same agreement, so validity is the identical issue. The parties actually litigated it, putting on evidence about validity at trial. The first judgment is valid and final. The jury necessarily decided the issue, because under the judge's instructions a finding of invalidity would have required a verdict for Bulger; the Bank won only by proving both the missed payments and a valid agreement.⁵ Bulger was a party to lawsuit one, and nothing in the facts suggests that he lacked a full and fair opportunity: he tried the case to a jury, put on evidence, and had every reason to fight. The two suits involve the same parties, so the nonmutual step never arises. Bulger is bound on validity, though the Bank must still prove that he missed the later installments.

Change one fact and the result changes. Suppose Bulger had contested only payment in lawsuit one and never questioned the agreement. Validity would then never have been actually litigated, and he could raise it in the second suit, because issue preclusion reaches issues that were actually litigated and not those that could have been litigated but weren't.⁶

Phillip and Doreen: a default

A default judgment fails at the actual-litigation step. Phillip obtains a default judgment against Doreen because she never answers. A default rests solely on the defendant's failure to appear, so no one litigates the issues. Doreen later sues Phillip. Issue preclusion applies only to issues actually litigated and determined in the prior action, and Phillip's negligence, or lack of it, was never actually litigated in the default proceeding. Doreen is therefore free to assert Phillip's negligence and try to prove it.⁷

Tayler and Chase: a harder case

The Tayler and Chase facts test the same method where several steps are harder. Elisabeth Tayler complained to the Maryland Bar Association about attorney Gail Chase. The Bar Grievance Committee then brought a disciplinary action against Chase in the Maryland Court of Appeals under that court's original jurisdiction. Chase, represented by counsel, pleaded a general denial and faced a half-day hearing before a special master. The master took evidence and found that Chase had accepted a $1,000 fee for Tayler's divorce, never told Tayler of the trial date, and failed to appear, so that a default judgment denied Tayler custody, marital property, and fees. The Court of Appeals adopted the findings, ordered Chase to repay the fee, and suspended her license for thirty days.

Tayler then sues Chase for malpractice in the federal court for the Eastern District of Virginia, which has diversity jurisdiction, and she wants to use the disciplinary judgment to establish Chase's failure. A Maryland court issued that judgment, so the Virginia federal court must apply the preclusion law that the Maryland court would apply to its own judgment. Neither Virginia law nor federal common law supplies the rules.⁸

On the elements, the disciplinary charge was that Chase failed to represent Tayler adequately, and the malpractice question is whether Chase breached a duty of reasonable care. The two are not worded identically but look substantially the same, so breach is the identical issue. Causation and the amount of Tayler's injuries never came up in the disciplinary case, so the judgment can supply at most partial preclusion on breach. The half-day hearing and the master's findings show actual litigation. The Court of Appeals entered a valid final judgment, and the findings were necessary to it, because the court adopted them as the basis for its sanctions.

Full and fair opportunity is the open step, and any answer is a best guess that requires confirmation. Chase's incentive is not in doubt: her license was at stake, and she lost it for thirty days. The special master's findings were recommendations to an established court, which accepted them. On balance, Chase likely had a full and fair opportunity, so the essential findings likely carry issue-preclusive effect.⁹

The last step is the nonmutual one. Tayler was not a party to the disciplinary case, so she uses its judgment offensively against a party who litigated it. Even if Maryland has abandoned mutuality for defensive use, it may not have gone the whole way to offensive use. If it has, and applies the discretionary standard that the Supreme Court adopted as federal common law in Parklane Hosiery Co. v. Shore, this looks like a proper case for offensive preclusion.¹⁰ Parklane commits the question to the trial court's broad discretion and directs the judge to refuse offensive estoppel when the plaintiff could easily have joined the earlier action or when applying it would be unfair to the defendant.¹¹ Tayler is no wait-and-see plaintiff, because she probably had no right to join the disciplinary proceeding as a party.¹²

A finished answer on facts like these states a conclusion at each step, marks the step that stays uncertain, and names the information that would settle it. Here two points remain open: whether the disciplinary proceeding gave Chase a full and fair opportunity, and whether Maryland allows offensive use at all.