Non-Mutual Collateral Estoppel: A Shield, but is it a Sword?

By Brad McCullough

Traditionally, the preclusive effects of res judicata and collateral estoppel applied only if the parties in the second case were the same as, or in privity with, the parties in the first case. This was commonly referred to as the “strict mutuality of parties” requirement, but the Court of Appeals “long ago discarded” that requirement for both res judicata and collateral estoppel. Caldor, Inc. v. Bowden, 330 Md. 632, 657 (1993) (citations omitted). Thus, it is now “irrelevant that the party seeking to assert collateral estoppel was not a party to the prior proceeding. Only the party against whom collateral estoppel is asserted need be a party or in privity with a party in the prior adjudication.” Id. at 657.

Those cases involved the defensive use of collateral estoppel, i.e. a defendant’s use of the doctrine to prevent a plaintiff from re-litigating an issue that the plaintiff had litigated and lost in prior litigation. This is typically referred to as “defensive non-mutual collateral estoppel.” In essence, the doctrine is being used as a shield against a plaintiff’s claim.

But what about the offensive use of the doctrine – may a plaintiff use the doctrine as a sword to pierce the defendant? Should a plaintiff be entitled to rely on collateral estoppel to prevent a defendant from re-litigating an issue that the defendant lost in an earlier case with a different plaintiff? Should Maryland recognize offensive non-mutual collateral estoppel? Recently, both the Court of Special Appeals, in Garrity v. Maryland State Bd. of Plumbing, 221 Md. App. 678 (2015), and the Court of Appeals, in Shader v. Hampton Improvement Ass’n, Inc., 443 Md. 148 (2015), took up that very issue, arriving at somewhat different conclusions. In its analysis in Shader, the Court reviewed the U.S. Supreme Court’s decision in Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322 (1979), as well as its own earlier treatment of the issue. I will do the same.

Leo Shore sued Parklane Hosiery Co., Inc., and thirteen individual defendants. While his case was pending, the SEC sued the same defendants based on the same allegations that Shore had made in his lawsuit. The SEC prevailed at trial in its case, the district court entered a declaratory judgment in the SEC’s favor, and that judgment was affirmed on appeal. Id. at 325. Shore then moved for partial summary judgment in his case, arguing that the defendants “were collaterally estopped from relitigating the issues that had been resolved against them in the action brought by the SEC.” Id. (footnote omitted). The district court denied the motion, concluding that applying collateral estoppel in that manner would deny the defendants their Seventh Amendment right to a jury trial. The Court of Appeals for the Second Circuit reversed, and the case went to the Supreme Court.

Before addressing the Seventh Amendment issue, the Court considered whether the defendants could “be precluded from relitigating facts resolved adversely to them in a prior equitable proceeding with another party under the general law of collateral estoppel,” and, more particularly, “whether a litigant 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.” Id. at 326 (footnote omitted).

After recognizing that the strict mutuality of parties requirement had been relaxed in cases involving defensive use of collateral estoppel, the Court discussed the arguments for why offensive use and defensive use should be treated differently. “First, offensive use of collateral estoppel does not promote judicial economy in the same manner as defensive use does.” Id. at 329. If a plaintiff has a claim against multiple defendants, defensive collateral estoppel provides “a strong incentive to join all potential defendants in the first action if possible,” because if the plaintiff sues only one of those defendants, and loses on an issue, defensive collateral estoppel precludes the plaintiff from relitigating that issue against subsequent defendants. Id. at 329-30. So the plaintiff might as well litigate all claims against all defendants in one action. “Offensive use of collateral estoppel, on the other hand, creates precisely the opposite incentive.” Id. at 330.  If there are multiple potential plaintiffs, all but one of them could “adopt a ‘wait and see’ attitude.” Id. Instead of joining the first plaintiff’s lawsuit, those other parties could sit back, hope that the first plaintiff is successful, and then rely on offensive collateral estoppel to bind the defendant.

Second, “offensive use of collateral estoppel . . . may be unfair to a defendant.” For example, the first action may involve limited damages, which could give the defendant little incentive to defend that case vigorously. “Allowing offensive collateral estoppel may also be unfair to a defendant if the judgment relied upon as a basis for the estoppel is itself inconsistent with one or more previous judgments in favor of the defendant.” Id. (footnote omitted). Finally, “it might be unfair to apply offensive estoppel . . . where the second action affords the defendant procedural opportunities unavailable in the first action that could readily cause a different result.” Id. at 330-31 (footnote omitted).

The Court, however, did not adopt a bright-line rule, but instead chose a case-specific approach, deciding “not to preclude the use of offensive collateral estoppel, but to grant trial courts broad discretion to determine when it should be applied.” Id. at 331 (footnote omitted). Thus, “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.” Id. Otherwise, offensive use could be appropriate.[1]

The Court of Appeals of Maryland considered the application of offensive non-mutual collateral estoppel in Rourke v. Amchem Prods., Inc., 384 Md. 329 (2004). The Court discussed the Supreme Court’s consideration of offensive non-mutual collateral estoppel in Parklane, noting that the Supreme Court “expressed some concerns about, and refrained from blessing the broad application of, offensive non-mutuality.” Id. at 349. But the Court of Appeals did not reach the ultimate issue, because the judgment upon which preclusion was based was a Virginia judgment, and the Court concluded that Virginia’s preclusion rules had to be applied. As the Virginia Supreme Court had already rejected the use of offensive non-mutual collateral estoppel, its ruling controlled. The Court of Appeals therefore did not decide whether Maryland would approve the offensive use of non-mutual collateral estoppel.

Eight years later, the issue was before the Court again in Burruss v. Board of Cty. Comm’rs of Frederick Cty., 427 Md. 231 (2012). In that case, the plaintiff asked that preclusive effect be given to a declaratory judgment that had been entered by a circuit court. That judgment, however, was inconsistent with prior holdings of the Court of Appeals and the Court of Appeals refused to allow that judgment to bind the parties. “It would be unfair to bind Respondents to an incorrect interpretation of the law, as determined by another trial court, that could have been, and should have been, interpreted correctly by that trial court.” Id. at 252. Moreover, the Court had recently vacated the circuit court’s judgment, and had reaffirmed its earlier holdings. Under those circumstances, the Court “decline[d] to adopt the doctrine of offensive non-mutual collateral estoppel.” Id.[2]

Earlier this year, the Court of Special Appeals decided Garrity and embraced the use of offensive non-mutual collateral estoppel, at least in the context of successive proceedings brought by separate administrative agencies. Garrity was a plumber whose plumbing company was charged by the Consumer Protection Division of the Attorney General’s Office with multiple claims of unfair and deceptive trade practices. After an evidentiary hearing before an administrative-law judge, the Division issued a Final Order concluding that Garrity “had committed at least 7,079 violations of the [Consumer Protection Act] by engaging in unfair or deceptive practices related to providing plumbing services.” 221 Md. App. at 682.

After reviewing that Order, the State Plumbing Board brought its own set of charges against Garrity. The Board eventually issued a Final Decision and Order that was based on the Consumer Protection Division’s factual findings and applied collateral estoppel. Garrity filed a petition for judicial review and the circuit court upheld the Board’s decision. Garrity then noted an appeal to the Court of Special Appeals.

Garrity argued that the Plumbing Board had inappropriately used offensive non-mutual collateral estoppel, but the Court of Special Appeals disagreed. Citing Parklane and Rourke, the Court observed that in “civil actions between private, non-governmental parties, courts have noted two general concerns that could limit the application of this doctrine,” i.e. “judicial economy and fairness.” Id. at 688 (emphasis added). The Court said that “[i]n light of these twin concerns,” the Court of Appeals “has never rejected offensive nonmutual collateral estoppel as a doctrine, but merely found it inappropriate to the specific facts before it.” Id. at 689.

Noting that it had previously approved the use of the doctrine in a similar context in Culver v. Maryland Ins. Comm’r, 175 Md. App. 645 (2007), the Court concluded that the concern regarding judicial economy was not implicated because, unlike private litigants, administrative agencies will not adopt a “wait and see” attitude toward the first action.[3]

Here, two separate state agencies sought to prosecute a licensee for the same illegal course of conduct. Unlike private parties, the [Consumer Protection Division] and the [Plumbing Board] could not join their proceedings together, because administrative agencies can only adjudicate violations of their own statutes. For this reason, offensive nonmutual collateral estoppel is appropriate when the plaintiffs are two government agencies unable to jointly bring their case in a single proceeding.

221 Md. App. at 692 (emphasis added).

The Court also concluded that none of the fairness concerns were present. Garrity had ample incentive to defend the first proceeding vigorously; the first proceeding was not inconsistent with an earlier judgment; and the second case did not present any procedural opportunities that were not present in the first case. Id. at 692-93. The Court “also note[d] that this case and Culver both involved Maryland administrative agencies applying statutes designed to protect consumers in highly-regulated industries.” Id. at 693. The Court saw “no unfairness here in preventing Garrity from relitigating the question of his deceptive plumbing practices.” Id.

Four months later, in Shader, the Court of Appeals again considered the issue of offensive non-mutual collateral estoppel. There, the owners of property in a residential neighborhood sued their homeowners’ association, seeking a declaratory judgment that their property consisted of two separate buildable lots and that the restrictive covenants did not prohibit building a house on the second lot. The plaintiffs moved for summary judgment, arguing that a judgment entered against the association in a prior case established that the association had waived the right to enforce the covenants and that the covenants had therefore been abandoned. According to the plaintiffs, the association was collaterally estopped by that earlier ruling.

The circuit court denied that motion, ruling that the issues decided in the earlier case were different from the ones presented by the Shaders’ complaint. The circuit court ultimately ruled in favor of the homeowners’ association, and the Court of Special Appeals affirmed. 217 Md. App. 581 (2014). The “intermediate appellate court determined that the Circuit Court correctly denied the Shaders’s attempted use of offensive non-mutual collateral estoppel, because the issues in [the earlier case] were not identical to the issues in the instant case.” 115 A.3d at 191-92.

The Court of Appeals granted certiorari and affirmed. The Court observed that “[t]he doctrine of offensive non-mutual collateral estoppel has not been embraced and applied by this Court, but has been invoked by other courts ‘when a plaintiff seeks to foreclose a defendant from relitigating an issue the defendant has previously litigated unsuccessfully in another action against a different party.’” Id. at 193 (emphasis in original) (quoting Welsh v. Gerber Prods., Inc., 315 Md. 510, 517 n. 6 (1989)). The Court then discussed its decision in Burress, which included its analysis of Parklane. Ultimately, the Court “decline[d] to embrace the doctrine of offensive non-mutual, under the circumstances in this case, because the issues in [the earlier litigation] differ from the issues in the Shaders’s case.” Id. at 197 (emphasis added). It later re-iterated: “We have not embraced the doctrine of offensive non-mutual collateral estoppel, but even were we, the doctrine could not be applied in the present case because the issues addressed in [the earlier case] are different from those queued up here.” Id.

Where does that leave us? The Court of Appeals in Shader did not discuss or mention the decision of the Court of Special Appeals in Garrity, and, apparently, no petition for a writ of certiorari was filed in that case. Similarly, the Court of Appeals has never cited Culver, where the Court of Special Appeals had also applied offensive non-mutual collateral estoppel in the context of an administrative proceeding. And no cert petition was filed in that case. So there’s no indication how the Court of Appeals views either the Court of Special Appeals’ application of offensive non-mutual collateral estoppel in the context of administrative actions or the intermediate court’s fuller embrace of Parklane.

Here is what we do know. The Court of Special Appeals has twice authorized the offensive use of non-mutual collateral estoppel; in doing so, it acknowledged the concerns expressed by the Supreme Court in Parklane and followed the factor-laden test developed by the Parklane Court. The Court of Appeals, on the other hand, has repeatedly cited approvingly the concerns expressed by the Parklane Court, but has stopped short of adopting Parklane’s case-by-case approach to applying the doctrine.

The Court of Appeals has never embraced the doctrine, but it has never rejected it either. The approach taken by the Court of Special Appeals is sound, but the Court of Appeals needs to utter the final word. This is an issue that needs to find its way back to our highest court.

[1] Indeed, in the case before it, the Court held that “none of the circumstances that might justify reluctance to allow the offensive use of collateral estoppel [was] present.” Id. at 331. The Court explained:

The application of offensive collateral estoppel will not here reward a private plaintiff who could have joined in the previous action, since the respondent probably could not have joined in the injunctive action brought by the SEC even had he so desired. Similarly, there is no unfairness to the petitioners in applying offensive collateral estoppel in this case. First, in light of the serious allegations made in the SEC’s complaint against the petitioners, as well as the foreseeability of subsequent private suits that typically follow a successful Government judgment, the petitioners had every incentive to litigate the SEC lawsuit fully and vigorously. Second, the judgment in the SEC action was not inconsistent with any previous decision. Finally, there will in the respondent’s action be no procedural opportunities available to the petitioners that were unavailable in the first action of a kind that might be likely to cause a different result.

Id. at 331-32 (footnotes omitted). The Court also held that the application of collateral estoppel did not violate the Seventh Amendment.

[2] Interestingly, the Court observed that, in Rourke, it had explained that the Supreme Court in Parklane had “declined to embrace the doctrine of offensive non-mutual collateral estoppel.” Id.at 252 (citing Rourke, 384 Md. at 349-50). The Court also deemed “the Supreme Court’s analysis in Parklane persuasive.” Id.

[3] In Culver, the Maryland Insurance Agency revoked an attorney’s insurance producer’s license based on the same conduct that had led to his disbarment. The Court of Special Appeals held that the Agency had properly relied on the findings adopted by the Court of Appeals in the prior attorney grievance matter and that Culver was properly prevented from relitigating in the insurance license revocation proceeding issues that had been decided against him in the grievance proceedings.