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Thursday, April 21, 2011

Final Civil Procedure Case of the Year

Parklane Hosiery Co. v. Shore:
439 U.S. 322 (1979)
Issue: Whether a litigation who was not a party to a prior judgment may nevertheless use that judgment "offensively" to prevent a defendant from relitigating issues resolved in the earlier proceeding
Rule: Mutuality of Estoppel                                                                                                                                  
Application: Collateral Estoppel has a dual purpose of protecting litigants from the burden of relitigating an identical issue with the same party or his privy and of promoting judicial economy by preventing needless litigation.
-Mutuality Doctrine: Neither party could use a prior judgment as an estoppel against the other unless both parties were bound by the judgment
-Criticized for failing to recognize the difference in position between a party who has never litigated an issue and one who has fully litigated and lost
-Blonder-Tongue v. University of Illinois: Abandoned the mutuality requirement, at least in cases where a patentee seeks to relitigate the validity of a patent after a federal court in a previous lawsuit has already declared it to be invalid.
-The present case involves the offensive use of collateral estoppel
-In both the offensive and defensive uses, the party against who estoppel is asserted has litigated and lost in an earlier action
-Why offensive and defensive collateral estoppel are different:
  1. Offensive use of collateral estoppel does not promote judicial economy in the same manner as defensive.
    1. Defensive prevents a plaintiff from relitigating identical issues by merely "switching adversaries." Strong incentive to join all potential defendants
    2. Offensive: Creates the opposite incentive. Plaintiffs adopt a "wait and see" attitude
  1. It may be unfair to the defendant
    1. If the first suit is for small or nominal damages, defendant may have little incentive to defend vigorously, particularly if future suits are not foreseeable.
    2. May be unfair if the judgment relied upon as a basis for estoppel is inconsistent with one or more previous judgments in favor of the defendant
    3. Unfair where the second action affords the defendant procedural opportunities unavailable in the first action that could readily cause a different result
-Courts have concluded that the preferable approach for dealing with these problems in the federal courts is not to preclude the use of offensive collateral estoppel, but to grant trial courts broad discretion to determine when it should be applied.
-General Rule (Should be): In cases where a plaintiff could easily have joined in the earlier action or where, either for the reasons discussed above or for other reasons, the application of offensive estoppel would be unfair to a defendant, a trial judge should not allow the use of offensive collateral estoppel
-None of the circumstances that might justify the reluctance to use collateral estoppel are present.
-Will not reward a private plaintiff who could have joined in the previous action, since the plaintiff probably could not have joined.
-No unfairness to defendants in applying offensive collateral estoppel
-Serious allegations in the SEC complaint gave defendants incentive to vigorously defend
-Judgment in the SEC decision was not inconsistent with any previous decision
-Will be no procedural opportunities available to petitioners that were unavailable in the first action of a kind that might be likely to cause a different result.
Second Question: Would the use of offensive collateral estoppel violate the defendants 7th amend. right
-Beacon Theaters: Held: When legal and equitable claims are joined in the same action, the trial judge has only limited discretion in determining the sequence of trial and "that discretion must whenever possible, be exercised to preserve jury trial"
-Katchen: Recognized that an equitable determination can have collateral-estoppel effect in a subsequent legal action and that this estoppel does not violate the 7th amendment
-Defendants have advanced no persuasive reason why the meaning of the 7th amendment should depend on whether or not mutuality of parties is present.
-The 7th amendment has never been interpreted in the rigid manner advocated by the defendants.
Conclusion: Yes, can

-Plaintiff/Respondent: Shore
-Defendant/Petitioner: Parklane Hosiery Co.

-Suit 1: Plaintiff v. Defendant
-Suit 2: SEC v. Defendant
-Obtains judgment first

-Plaintiff brought stockholder's class action against the defendant in a Federal District Court.
-Complaint alleged that the defendant, and 13 of its officers, directors, and stockholders, had issued a materially false and misleading proxy statement in connection with a merger.
-These statements allegedly violated the Securities Exchange Act of 1934, as well as various rules and regulations promulgated by the Securities and exchange Commission
-Sought: Damages, rescission of the merger, and recovery of costs.
-Before Trial: SEC filed suit against defendant in Federal District Court, alleging that the proxy statement that had been issued by defendant was materially false and misleading in essentially the same respects as those that had been alleged in the plaintiff's complaint
-Injunctive relief was requested
-After 4 day trial, the District Court found that the proxy statement was materially false and misleading in the respects alleged, and entered a declaratory judgment to that effect.
-Court of Appeals: Affirmed
-Plaintiff then moved for a partial summary judgment, asserting that the defendants were collaterally estopped from relitigating the issues that had been resolved against them in the action brought by the SEC.
-District Court: Denied the motion on the ground that such an application of collateral estoppel would deny the petitioners their 7th amendment right to a jury trial
-Court of Appeals: Reversed

-In the instant case, resort to the doctrine of collateral estoppel does more than merely contract the right to a jury trial: it eliminates the right entirely and therefore contravenes the 7th amendment.
-Majorities argument: A litigant was not entitled to have a jury determine issues that had previously been adjudicated by a chancellor in equity and that "petitioners have advanced no persuasive reason why the meaning of the 7th amendment should depend on whether mutuality is present
-That is like saying since a party is not entitled to a jury trial in equity, should not have one in law
-To hold that a jury trial is not required is to rewrite the 7th amendment
-It is unfair to apply offensive collateral estoppel where the party who is sought to be estopped has not had an opportunity to have the facts of his case determined by a jury.
-Defendants did not receive a jury trial in the SEC lawsuit
-Several factors favor this position
  1. The use of offensive collateral estoppel in this case runs counter to the strong federal policy favoring jury trials
  2. The opportunity for a jury trial in the second action could easily lead to a different result from that obtained in the first action, and therefore it is unfair to estop defendants from relitigating  
-Even if defendants are collaterally estopped from relitigating whether the proxy was materially false and misleading, they are still entitled to have a jury determine whether plaintiff was injured by the alleged misstatements and the amount of damages.
-Thus, won't save much

Sorry for the shabby notes! I've been working on my outlines ;D


  1. very informative and interesting read

  2. Was a long read, but its pretty interesting.

  3. I wanted to go to law school.

  4. I hardly understand anything, but since I have a fascination for laws (and a longgone career interest) I'll be following youto learn more!