Non-Mutual Collateral Estoppel: A Shield, but Now Clearly Also a Sword
Last summer, I reviewed the decision of the Court of Appeals in Shader v. Hampton Improvement Ass’n, Inc., 443 Md. 148 (2015), and the decision of the Court of Special Appeals in Garrity v. Maryland State Bd. of Plumbing, 221 Md. App. 78 (2015), and posed the following question: In addition to being used defensively as a shield, may non-mutual collateral estoppel be used offensively as a sword? In Garrity, the Court of Special Appeals had embraced the use of offensive non-mutual collateral estoppel, at least in the context of successive proceedings brought by separate administrative agencies. But I noted that the Court of Appeals on a number of occasions had neither embraced nor rejected offensive use of the doctrine, and, in Shader, had skirted the question, holding that the case did not require an answer to it. I suggested that the issue needed to make its way back to our highest court so that the Court could have the final word on the subject. Having granted certiorari in Garrity, the Court of Appeals a few weeks ago issued an opinion permitting offensive non-mutual collateral estoppel.
Garrity was a plumber whose company was charged by the Consumer Protection Division (the “CPD” or “Division”) of the Attorney General’s Office with multiple claims of unfair and deceptive trade practices. After two days of evidentiary hearings, the Division issued a Final Order adopting the administrative law judge’s finding that Garrity, through his company, “engaged in a longstanding and disturbing pattern of conduct involving deception and deceit.” Garrity v. Maryland State Bd. of Plumbing, No. 35, Sept. Term 2015, Slip Op. at 3 (April 26, 2016) (internal quotation marks omitted). The Division also adopted the judge’s conclusion that Garrity “committed at least 7,079 violations of” the Consumer Protection Act. Id. (footnote omitted). The Division imposed $707,900 in civil penalties and $65,129.54 in assessed costs. Id. at 4.
The Maryland State Board of Plumbing (the “Board”) then brought its own administrative complaint against Garrity. Id. The Board’s charges incorporated by reference the CPD’s Final Order, which, at the administrative hearing, was also admitted into evidence despite Garrity’s objection. Id. at 5. Garrity’s counsel argued that the Board had to conduct its own evidentiary hearing and “prove independently” the violations for which Garrity was charged. Id.
The Board’s lawyer, on the other hand, argued that Garrity was collaterally estopped from re-litigating the facts that were determined in the CPD’s Final Order. Id. The Board agreed, applied the doctrine of collateral estoppel, adopted the Consumer Protection Division’s findings of fact, and issued its Final Decision and Order concluding that Garrity “had committed ‘pervasive, numerous and egregious’ violations of” the Maryland Plumbing Act. Id. The Board revoked his master plumber license and imposed a $75,000 civil penalty. Id. (footnote omitted).
Garrity sought judicial review, but the Circuit Court for Baltimore City upheld the Board’s ruling and the Court of Special Appeals affirmed. The Court of Appeals granted Garrity’s petition for writ of certiorari, affirmed the decision of the Court of Special Appeals, and for the first time approved the offensive use of non-mutual collateral estoppel. Chief Judge Barbera authored the Court’s opinion, which began with an analysis of collateral estoppel. Under that doctrine, if “an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.” Id. at 7 (internal quotation marks omitted) (citations omitted). The doctrine is based on principles of judicial economy and fairness, saving litigants the burden of re-litigating issues that have already been decided and avoiding the expense of unnecessary litigation. Id.
Traditionally, the preclusive effect of 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. That requirement for mutuality of parties “has been relaxed, however, so long as the other elements of collateral estoppel are satisfied,” giving rise to the application of so-called “non-mutual” collateral estoppel. Id. (citation omitted). Collateral estoppel invoked by a defendant is called “defensive” use, while use by a plaintiff is referred to as “offensive” use. Id. at 8. Chief Judge Barbera explained the distinction between offensive non-mutual collateral estoppel and defensive non-mutual collateral estoppel by quoting from the Court’s opinion in Shader:
Defensive non-mutual collateral estoppel has been invoked in Maryland, when a defendant seeks to prevent a plaintiff from relitigating an issue the plaintiff has previously litigated unsuccessfully in another action against a different party. The 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 8 (quoting Shader, 443 Md. at 162-63 (citations and internal quotations marks omitted)) (emphasis in original).
Just as it had a year earlier in Shader, the Court turned its attention to the United States Supreme Court’s seminal opinion in Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322 (1979). Garrity at 9 (citation omitted). The Supreme Court “recognized certain concerns attendant to applying non-mutual collateral estoppel offensively.” Id. (citation omitted). For one, it acknowledged that offensive use of non-mutual collateral estoppel “does not promote judicial economy in the same manner as defensive use does.” Id. (internal quotation marks omitted) (citation omitted). If a plaintiff has a claim against multiple defendants, defensive collateral estoppel incentivizes the plaintiff to join all the defendants in one action. Id. If the plaintiff sues only one of those defendants, and loses on an issue, defensive collateral estoppel precludes the plaintiff from re-litigating that issue against subsequent defendants. Parklane, 439 U.S. at 329-30. So the plaintiff might as well litigate all claims against all defendants in one action.
The offensive use of non-mutual collateral estoppel, however, generates the opposite incentive. Id.; Garrity at 9. If there are multiple potential plaintiffs, all but one of them could “adopt a ‘wait and see’ attitude.” Parklane, 439 U.S. at 330; Garrity at 9. Instead of joining the first plaintiff’s action, those other potential plaintiffs could sit back, hope that the first plaintiff is successful, and then rely on offensive collateral estoppel to bind the defendant.
The Garrity Court also addressed fairness concerns expressed in Parklane. For example, a case forming the basis for future use of offensive collateral estoppel might involve only small or nominal damages, giving the defendant little incentive to defend the case vigorously, especially if “a future suit was not foreseeable.” Garrity at 9 (citation omitted). Similarly, offensive use could be unfair to the defendant “if the judgment relied upon was ‘itself inconsistent with one or more previous judgments in favor of the defendant,’ or the second action allowed ‘procedural opportunities unavailable in the first action that could readily cause a different result.’” Id. (citation omitted).
The Parklane Court, however, did not adopt a bright-line rule, but instead chose a case-specific approach, giving trial courts “broad discretion to determine when offensive non-mutual collateral estoppel should be applied.” Id. at 10 (citation omitted). The Garrity Court quoted the rule pronounced in Parklane:
The general rule should be that 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.
Id. (citation omitted). The Court of Appeals acknowledged that it had “reiterated the Parklane Court’s concerns about offensive non-mutual collateral estoppel in several cases in which its application was sought,” but had not “expressly adopted or rejected that particular permutation.” In each of those cases, “the particulars of the case have counseled against [the Court] doing so.” Id.
The particulars of the Garrity case, however, posed no such impediment. After discussing the decision of the Court of Special Appeals in Culver v. Md. Ins. Comm’r, 175 Md. App. 645 (2007) – where the doctrine had been applied in the context of successive adjudications by separate administrative agencies – the Court followed the approach suggested by Parklane and proceeded to evaluate “the factors necessary to invoke offensive non-mutual collateral estoppel.” Id. at 15.
The Court held that giving preclusive effect to the Division’s Final Order was consistent with principles of judicial economy and fairness. Id. at 15. The Board of Plumbing could not have joined the first proceeding brought by the Consumer Protection Division. “Both are administrative agencies, and both are constrained to charge violations of their own statutes.” Id. (citations omitted). Consequently, the Board’s action was not “the kind of ‘wait and see’ attitude that troubled the Parklane Hosiery court.” Id. at 16 (internal quotation marks omitted) (citation omitted). Plus, as Garrity failed to mount a real defense before either agency, forcing the Board to present the “same evidence already presented to the CPD” and establish the same facts “would be a waste of resources.” Id. Therefore, precluding Garrity from re-litigating those facts served principles of judicial economy. Id. (citation omitted).
In addition, applying collateral estoppel was not unfair to Garrity, who “had every ‘incentive to defend vigorously’ the CPD’s allegations” and who recognized that an adverse ruling by the agency would foreseeably cause the Board to attempt to revoke his license. Id. (citation omitted). There was no prior adjudication that was inconsistent with the Division’s decision. Id. at 17 (citation omitted).
Finally, there was “no concern that there were different ‘procedural opportunities’ in the two proceedings.” Id. To the contrary, the procedures followed in each case were nearly identical. “Each proceeding was brought by an administrative agency that conducted a contested case administrative hearing as in conformance with the Administrative Procedure Act.” Id. (citation omitted). As the Court summarized:
Upon our review of the transcript of the Board’s proceeding and insofar as the record otherwise reflects, the two administrative hearings proceeded in much the same way. Petitioner had every opportunity to present evidence or testimony before the CPD and the Board but chose not to do so, and his admissible evidence would have been accepted and considered the same way in each proceeding. Indeed, Petitioner acknowledged at oral argument before us that there was nothing procedurally unfair about either administrative hearing. In sum, where the CPD was “applying statutes designed to protect consumers in highly-regulated industries,” we, like the Court of Special Appeals, “see no unfairness here in preventing [Petitioner] from relitigating the question of his deceptive plumbing practices.”
Id. at 18 (citation omitted).
Therefore, offensive use of non-mutual collateral estoppel is now clearly available to litigants in Maryland. But to take advantage of this newly available sword, a party must establish each of the traditional elements of collateral estoppel and also persuade a trial judge that the offensive use of it is equitable under the facts and circumstances of the case. Does application of the doctrine comport with principles of judicial economy and fairness? Could the plaintiff have easily joined in the earlier action? Did the defendant have incentive to defend the first case vigorously? Was the earlier judgment inconsistent with other decisions in favor of the defendant? Both the party seeking to swing the sword and the party trying to avoid it must be ready to address these questions, remembering that the doctrine is not a bright-line rule but a case-by-case approach that trial courts have “broad discretion” to apply (yet is nonetheless often the subject of appellate challenge, see e.g. In re Microsoft Corp. Antitrust Litigation, 355 F.3d 322, 326-29 (4th Cir. 2004)). Parklane Hosiery, 439 U.S. at 331, quoted in Garrity at 10.
Counsel must also make pre-litigation decisions cognizant of the possible application of offensive non-mutual collateral estoppel. As one noted commentator has explained:
The potential adverse effects of nonmutual offensive use of collateral estoppel may require difficult decisions at early stages of the litigation. For example, when a client is confronted with several similarly situated claimants whose cases involve common issues of fact, an adverse ruling in any one of those cases may be disastrous for defense of the others due to its collateral estoppel effects. Careful analysis of the various cases in order to determine which are the cases to try first or even which cases must be settled may be critical to avoiding adverse collateral estoppel effects. This analysis may not always be limited to the legal issues. For example, in the context of similar securities claims, the claim brought by a widow living on a fixed income may well be one that requires settlement, whereas the same claim by a sophisticated, professional investor may be a case to try. Conversely, when acting as plaintiff’s counsel, recognition of the possible collateral estoppel effect your case presents for the defendant may be important to achieving full settlement potential of the case.
Robert Fiesbach and Jennifer M. McHugh, Business and Commercial Litigation in Federal Courts § 16:22 (3d ed. 2015).
In short, Maryland lawyers should consider the offensive use of non-mutual collateral estoppel in their decision-making for both potential and pending litigation.
There are four elements that must be met before the preclusive effect of collateral estoppel can be applied:
- The issue decided in the prior adjudication must be identical with the one presented in the action in question.
- There must have been a final judgment on the merits.
- The party against whom the plea is asserted must have been a party or in privity with a party to the prior adjudication.
- The party against whom the plea is asserted must have been given a fair opportunity to be heard on the issue.
Id. at 8.
 In Rourke v. Amchem Prods., Inc., 384 Md. 329 (2004), the judgment upon which preclusion was based was a Virginia judgment, so Virginia’s preclusion rules were applied; as the Virginia Supreme Court had already rejected the use of offensive non-mutual collateral estoppel, its rule controlled. In Burrus v. Bd. of Cty. Comm’rs of Frederick City, 427 Md. 231 (2012), the judgment that was asked to be given preclusive effect was inconsistent with prior holdings of the Court of Appeals and the Court refused to allow it to bind the parties. And in Shader, the issues in the earlier litigation were different than the ones presented in the subsequent litigation. Thus, a necessary element of collateral estoppel was missing.
 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 re-litigating in the insurance license revocation proceeding issues that had been decided against him in the grievance proceedings.
 Having determined that application of offensive collateral estoppel was equitable in the case, the Court considered whether the elements of the doctrine had been met. Id. at 18. “The only issue [was] whether the CPD’s Final Order constitute[d] a final judgment under the second prong of the analysis.” Id.; see footnote 1 supra. Garrity argued “that there was no ‘final judgment’ as that phrase is ordinarily contemplated because the decision was rendered by an administrative agency, not a court.” Id. at 18. The Court, however, rejected that argument. Id. at 18-23. Garrity also argued that being fined for violating both the Consumer Protection Act and the Maryland Public Act violated the Double Jeopardy Clause of the Fifth Amendment. The Court also rejected that argument, with Judge Adkins submitting a concurring opinion on the double jeopardy issue.