What is an insurance carrier to do when a claimant attempts to re-litigate a matter which reached a final judgment and involves identical parties? The carrier should check with its defense counsel for the merit of arguing claim preclusion. Recently, in Myers, Jr. v. Freed,ⁱ the Arizona Court of Appeals looked at the applicability of the claim preclusion argument to a matter which plaintiff William J. Myers Jr. (“Myers”) first sought to litigate in 2012.

Background

Myers was terminated by Freescale Semiconductor, Inc. (“Freescale”). In 2012, he sued Freescale alleging wrongful termination, defamation, and conversion. Freescale moved the case to District Court and it filed a motion for summary judgment. The company submitted a declaration signed by Victoria Brush, Freescale’s human resources manager, with the motion which summarized the sexual harassment investigation of Myers. In his response, Myers argued the signature on the executed declaration had been forged, and he questioned the validity of the investigation. The court granted Freescale’s motion and entered judgment in its favor. Myers filed multiple post-judgment motions which were all denied and described as “groundless, harassing, and frivolous.”ⁱⁱ

Accusations of Fraud

Two years later, Myers moved to set aside the judgment. He argued Freescale had committed fraud on the court. He retained a handwriting expert to opine the executed declaration in the original matter was fake. The District Court denied the motion to set aside, and the Ninth Circuit dismissed Myers’ appeal as untimely.ⁱⁱⁱ

In 2016, Myers filed another complaint against Freescale in Superior Court. He alleged Freescale committed fraud on the court in 2012 case by submitting a forged declaration. He again challenged the investigation into the sexual harassment claims against him. Freescale filed a motion for summary judgment on the basis of claim preclusion and denying the forgery allegation. Freescale submitted a second declaration signed by Victoria Brush which confirmed her signature on the first declaration was her true and correct signature. The court ruled in favor of Freescale. It ruled the fraud allegation was barred due to claim preclusion. Once again, Myers tried his luck with three post-judgment motions and the court denied them all. On appeal, the Court of Appeals upheld the court’s finding.^iv

Plaintiff’s Perseverance

Myers took one more stab at litigation in 2018 when he filed a lawsuit but this time naming Freescale’s attorney Leah Freed (“Freed”). He alleged she committed fraud on the court by submitting a forged declaration to the court in the 2016 matter. Myers also challenged the sexual harassment investigation. Freed moved to dismiss the lawsuit on the grounds the lawsuit was barred by the collateral estoppel doctrine, absolute litigation privilege, and failure to state a claim for fraud on the court. Myers argued the claim was not precluded because Freed committed the fraud in 2016, not 2012, and the prior case was against Freescale, not Freed. The court granted Freed’s motion. Myers appealed the court’s ruling.

Myers only appealed whether the court properly dismissed his complaint. On appeal, the Court of Appeals held the claim preclusion doctrine barred Myers from re-litigating the fraud on court allegations previously resolved by the District Court. The Court of Appeals found the similarity in the claims of the 2012 action and current litigation. The Court resolved the 2012 litigation by a final judgment on the merits, and there was sufficient privity between Freescale and Freed to bind the result of the 2012 litigation.^v

The Doctrine of Claim Preclusion

The Court of Appeals analyzed the issue under federal law because the District Court issued the judgment in the 2012 lawsuit. The doctrine of claim preclusion is where there is a final judgment on the merits, and it bars further claims by parties or the privies based on the same cause of action.^vi There are three elements to the defense of claim preclusion:

1. an identity of claims in the suit in which a judgment was entered and the current litigation,

2. a final judgment on the merits in the previous litigation, and

3. identify or privity between parties in the two suits.^vii

The first element requires the following four factor test:

1. the two suits arise out of the same transactional nucleus of facts;

2. rights or interests established in the prior judgment would be destroyed or impaired by prosecution of the second action;

3. the two suits involve infringement of the same right; and

4. substantially the same evidence is presented in two actions.^viii

The Court of Appeals applied the factors and found the prior litigation and subject matter arose out of Freescale’s investigation of the sexual harassment allegations against Myers and his termination. Myers litigated his challenges to the sexual harassment investigation and authenticity of the declaration. The District Court entered a final judgment on the merits against him. The allegations in the subject case had already been addressed in the previous matters.^ix

As to the second element, the Court of Appeals ruled Freescale’s interest in finality of the 2012 judgment would be undermined if the subject case was allowed to move forward. The lawsuits alleged the same infringement of rights and reliance upon the same evidence.^x

Finally, the Court of Appeals found there was privity between parties in the two suits. Freescale and Freed shared an interest in the fraud on the court claim. While the subject claim strictly named Freed, it is the same allegation of fraud as made in the 2012 case where Freed submitted the original declaration to support Freescale’s motion for summary judgment. The defenses presented in the 2012 matter adequately and sufficiently represented Freed’s interests which bound Myers’ allegations against Freed arising from the same set of facts.^xi

Takeaway:

Plaintiffs may get creative and try to re-litigate matters in which there is a final judgment due to an unfavorable original result. If the new lawsuit is similar to the previous matter, it is important to have your defense counsel review the applicability of the claim preclusion defense and look for an early resolution.

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