Title: Lincoln Loan Co. v. City of Portland
Citation: N/A
Docket Number: S51666
State: Oregon
Issuer: Oregon Supreme Court
Date: May 25, 2006

FILED: May 25, 2006
IN THE SUPREME COURT OF THE STATE OF OREGON
LINCOLN LOAN COMPANY,
an Oregon corporation,
Petitioner on Review,
v.
THE CITY OF PORTLAND,
a municipal corporation,
Respondent on Review,
and
STATE OF OREGON,
Intervenor-Respondent on Review.
(CC 0307-07891; CA A124756; SC S51666)
On review from the Court of Appeals.*
Argued and submitted March 10, 2005.
Ridgway K. Foley, Jr., of Greene &amp; Markley, P.C., Portland,
argued the cause and filed the briefs for petitioner on review. 
With him on the briefs was Steven E. Benson, Portland.
Harry M. Auerbach, Senior Deputy City Attorney, Portland,
argued the cause for respondent on review. 
Mary H. Williams, Solicitor General, Salem, argued the cause
for intervenor-respondent on review State of Oregon. 
Thomas M. Christ, Portland, filed an amicus brief for himself.
Before Carson, C.J.**, Gillette, Durham, Riggs, Balmer, and
Kistler, JJ.***
BALMER, J.
The judgment of the circuit court is affirmed.
*Appeal from Multnomah County Circuit Court, Linda L. Bergman, Judge.
** Chief Justice when case was argued.
*** De Muniz, Chief Justice when the decision was rendered,
did not participate in the consideration or decision of this
case.
BALMER, J.
In this declaratory judgment action, plaintiff 
challenges the constitutionality of the procedure by which the
voters adopted Article VII (Amended) of the Oregon Constitution 
in 1910.  For the reasons that follow, we conclude that plaintiff
may not challenge that procedure in this case.  Accordingly, we
affirm the circuit court's judgment in favor of defendant.
The issue arises in prosaic circumstances.  In 1995,
plaintiff Lincoln Loan obtained a money judgment against
defendant City of Portland in Multnomah County Circuit Court (the
"1995 judgment").  Defendant appealed, and the Court of Appeals
reversed the judgment.  Lincoln Loan Co. v. City of Portland, 158
Or App 574, 976 P2d 60 (1999), rev den, 330 Or 138, 6 P3d 1098,
cert den, 531 US 1013 (2000) (Lincoln Loan I).  After the final
appellate judgment in that case had issued, plaintiff filed this
declaratory judgment action seeking to set aside that judgment on
the ground that the Court of Appeals "does not lawfully exist"
and to obtain a declaration that the 1995 judgment is valid and
enforceable. 
Plaintiff alleged that the 1910 initiative measure that
amended Article VII violated the Oregon Constitution because it
had been adopted improperly.  Plaintiff argued that the 1910
initiative (1) encompassed multiple constitutional amendments
that were not closely related, but did not permit voters to vote
separately on each amendment, in violation of Article XVII,
section 1, of the Oregon Constitution; (2) had been enacted
without complying with the canvass and proclamation requirements
of Article XVII, section 1; and (3) failed to set forth the full
text of the proposed constitutional amendment in violation of
Article IV, section 1(2)(d), of the Oregon Constitution. 
Plaintiff asserted that, absent the provisions of Article VII
(Amended) that had been made part of the constitution by the 1910
initiative, the legislature had no authority to enact the
statutes by which it created the Court of Appeals in 1969. 
Therefore, plaintiff contended, the Court of Appeals did not
lawfully exist and had "no jurisdiction and no authority" to
overturn the 1995 judgment.
The trial court entered summary judgment in favor of
defendant, holding that plaintiff had filed its challenge to the
1910 initiative too late to comply with any applicable statutes
of limitations and that plaintiff had no standing to challenge
the 1910 initiative.  Plaintiff appealed.  The Court of Appeals
certified the appeal to this court, and we accepted that
certification.  
As we describe more fully below, we conclude that the
final judgment in Lincoln Loan I bars plaintiff from bringing
this action.  Plaintiff could have raised the legal theories that
it asserts in this declaratory judgment proceeding in the earlier
case that it brought against defendant.  Plaintiff litigated that
case to final judgment.  Under longstanding principles of claim
preclusion, plaintiff may not collaterally attack that final
judgment in this proceeding.


I.  PLAINTIFF'S THEORY OF THE CASE
We first outline plaintiff's theory of the case.  As
noted previously, plaintiff asserts that the procedure by which
the voters adopted Article VII (Amended) in 1910 suffered from
three constitutional defects.  For that reason, according to
plaintiff, Article VII (Amended) never became part of the Oregon
Constitution, and Article VII (Original) "remains in full force
and effect today."  Article VII (Original), section 1, provides,
in part, that "[t]he Judicial power of the State shall be vested
in a Supr[e]me Court, Circuit[] Courts, and County Courts * * *." 
That provision also refers to justices of the peace and to
municipal courts.  However, Article VII (Original) does not
mention or provide for an intermediate Court of Appeals and does
not authorize the legislature to create a Court of Appeals -- or,
indeed, any court.  In contrast, Article VII (Amended), section
1, provides, in part:
"The judicial power of the state shall be vested in one
supreme court and in such other courts as may from time
to time be created by law. * * * " 
The legislature created the Court of Appeals in 1969. 
Or Laws 1969, ch 198.  If Article VII (Amended), section 1, is a
valid part of the Oregon Constitution, then the legislature had
the authority to create the Court of Appeals, and plaintiff's
claim fails.  If Article VII (Amended), section 1, is not a valid
part of the Oregon Constitution, then the legislature had no
authority to create the Court of Appeals, the Court of Appeals
had no authority to reverse plaintiff's 1995 judgment against
defendant, and that judgment, as plaintiff alleges, "is valid and
enforceable in its entirety." 
II.  DEFENDANT'S CLAIM PRECLUSION ARGUMENT
Defendant answered the complaint by admitting and
denying plaintiff's allegations and asserting a number of
affirmative defenses.  Among those affirmative defenses,
defendant asserted that the trial court should decline to
exercise jurisdiction over plaintiff's declaratory judgment
action because "[p]laintiff had a more appropriate remedy to
challenge the jurisdiction of the Court of Appeals by direct
challenge to such jurisdiction in response to defendant's appeal
of the [1995 judgment]."  Defendant also raised a related
affirmative defense of estoppel, asserting that, by participating
throughout the litigation of Lincoln Loan I, "plaintiff
affirmatively asserted the benefit of provisions of Article VII
as amended by the initiative measure plaintiff attacks in this
action." (1)
Although defendant did not denominate it as such in its
answer, those affirmative defenses squarely raise the issue
whether, under the doctrine of claim preclusion, the entry of a
final, litigated judgment in Lincoln Loan I bars plaintiff from
bringing this action.  We begin by outlining the contours of
claim preclusion and then consider the application of those
principles to this declaratory judgment proceeding.
This court recently described claim preclusion in
Bloomfield v. Weakland, 339 Or 504, 510-11, 123 P3d 275 (2005):
"The doctrine of claim preclusion, formerly known as
res judicata, generally prohibits a party from
relitigating the same claim or splitting a claim into
multiple actions against the same opponent.  As this
court stated in Rennie v. Freeway Transport, 294 Or
319, 323, 656 P2d 919 (1982),
'a plaintiff who has prosecuted one action
against a defendant through to a final
judgment binding on the parties is barred on
res judicata grounds from prosecuting another 
action against the same defendant where the
claim in the second action is one which is
based on the same factual transaction that
was at issue in the first, seeks a remedy
additional or alternative to the one sought
earlier, and is of such a nature as could
have been joined in the first action.'  
See also Drews v. EBI Companies, 310 Or 134, 140-41, 795 P2d 531 (1990) (to same effect).  The rule forecloses a
party that has litigated a claim against another from
further litigation on that same claim on any ground or
theory of relief that the party could have litigated in
the first instance.  Dean v. Exotic Veneers, Inc., 271
Or 188, 194, 531 P2d 266 (1975)."
As an initial matter, the doctrine of claim preclusion
appears to apply to plaintiff's complaint here.  The record
demonstrates that in 1994 plaintiff filed an action against
defendant (and others) and that, in 1995, plaintiff filed a
fourth amended complaint that, in part, alleged violations of its
federal constitutional rights and sought damages under 42 USC
section 1983.  As a result of a jury verdict, plaintiff obtained
the 1995 judgment against defendant, which awarded plaintiff
damages of more than $2.7 million.  Defendant appealed that
judgment, and plaintiff participated in the appeal, briefing and
arguing the appeal in the Court of Appeals.  After the Court of
Appeals reversed the 1995 judgment, plaintiff filed a petition
for review by this court, which this court denied, and then it
filed a petition for a writ of certiorari from the United States
Supreme Court, which that court denied.  Ultimately, as the
complaint in this action alleges, in August 2000, the circuit
court clerk entered an appellate judgment issued by the Court of
Appeals pursuant to its opinion reversing the 1995 judgment.  The
entry of that appellate judgment concluded the earlier litigation
between plaintiff and defendant.  
To bring a declaratory judgment action, a plaintiff
must allege that its "rights, status or other legal relations are
affected" by, inter alia, a constitutional provision or statute.
ORS 28.020.  Plaintiff argues that the 1995 judgment was a
property right of plaintiff's that was impaired when the Court of
Appeals reversed it and that the alleged constitutional infirmity
of the Court of Appeals "affected" plaintiff's rights because the
Court of Appeals had no authority to reverse the 1995 judgment. 
Plaintiff's complaint seeks a declaration that the 1995 judgment
"is valid and enforceable."  Thus, the only claim that plaintiff
asserts in its complaint in this action arises from the Court of
Appeals' reversal of the 1995 judgment and the subsequent entry
of a final judgment in defendant's favor. 
That description of Lincoln Loan I demonstrates that,
at least as an initial matter, plaintiff's claim appears to be
barred by claim preclusion.  To use this court's words in
Bloomfield, quoting its earlier decision in Rennie, plaintiff
"prosecuted one action against a defendant through to a final
judgment binding on the parties" and plaintiff now is
"prosecuting another action against the same defendant where the
claim * * * is one which is based on the same factual transaction
that was at issue in the first * * *."  Bloomfield, 339 Or at
510-11.
Here, in seeking to revive the 1995 judgment, plaintiff
is pursuing the same relief that it sought at trial and through
the appellate stages of the earlier litigation.  Again using the
words of Bloomfield, the remedy plaintiff seeks "is of such a
nature as could have been joined in the first action."  Id. at
511.  Although plaintiff, in this proceeding, seeks to restore
the effect of the 1995 judgment by having this court hold that
the Court of Appeals lacked authority to reverse that judgment,
that issue could have been raised in the earlier litigation. 
Defendant points out, and plaintiff does not dispute, that
plaintiff could have raised the constitutional challenges that it
mounts in this case before the Court of Appeals or before this
court during the appeal of the 1995 judgment.  Well-settled
principles of claim preclusion "foreclose[] a party that has
litigated a claim against another from further litigation on that
same claim on any ground or theory of relief that the party could
have litigated in the first instance."  Id. (emphasis added).
We agree with defendant that, in this proceeding,
plaintiff asserts the same claim that it asserted in the earlier
case, that it seeks recovery from the same party, and that the
"ground[s] or theor[ies]" that plaintiff asserts here --
specifically, its challenges to the 1910 adoption of Article VII
(Amended) and the related claim that the Court of Appeals was
unconstitutionally established -- could have been raised and
litigated in the prior case.  Accordingly, principles of claim
preclusion ordinarily would bar plaintiff from bringing this
case.
III.  CLAIM PRECLUSION AND SUBJECT MATTER JURISDICTION
Plaintiff argues, however, that claim preclusion and
related doctrines do not apply to plaintiff's claim here because
the Court of Appeals lacked subject matter jurisdiction to review
and reverse the 1995 judgment.  In plaintiff's words, because of
the constitutional defects in the adoption of Article VII
(Amended), the legislature had no authority to create the Court
of Appeals, and that court therefore is a "pretend" or "non-existent" court.  Because the Court of Appeals lacked subject
matter jurisdiction, according to plaintiff, the resulting final
judgment in Lincoln Loan I is void, and "[o]ne may challenge a
void judgment at any time."
Plaintiff correctly observes that some court decisions
recognize a narrow exception to the claim preclusion rules
described above when the prior judgment was void because the
court that rendered it lacked jurisdiction.  The more difficult
issues, however, are the scope of that exception and whether the
judgment that plaintiff challenges here comes within that
exception.  We now turn to those issues.
A. Background
As we consider the relevant authorities, it will be
helpful to keep in mind the underlying purposes of the doctrine
of claim preclusion and of the exceptions to the doctrine.  It is
axiomatic that "[a] judgment may properly be rendered against a
party only if the court has authority to adjudicate the type of
controversy involved in the action."  Restatement (Second) of
Judgments § 11 (1982).  Ordinarily, however, if a party to a
proceeding contends that a particular court lacks the authority
to adjudicate the proceeding, then that party must raise that
issue with the court before the judgment becomes final.  Id. at §
11 comment d.  When a question is raised as to whether a
particular court has subject matter jurisdiction over a
proceeding, that court has authority to decide the question.  Id.
at § 11 comment c; see also Clawson et ux v. Prouty et ux, 215 Or
244, 249, 333 P2d 1104 (1959) ("Every court confronted with a law
suit of any kind is under both the necessity and the duty of
determining whether or not it has jurisdiction to entertain the
suit, and it necessarily has jurisdiction to make this
determination.") (internal quotations and citations omitted).  
As described above, the doctrine of claim preclusion
generally bars a party from challenging in a separate proceeding
issues that were or could have been determined in a prior,
litigated action between the same parties.  That principle
applies to the issue of subject matter jurisdiction, with limited
exceptions.  The Restatement articulates the rule as follows:
"When a court has rendered a judgment in a
contested action, the judgment precludes the parties
from litigating the question of the court's subject
matter jurisdiction in subsequent litigation except if:
"(1) The subject matter of the action was so
plainly beyond the court's jurisdiction that its
entertaining the action was a manifest abuse of
authority; or
"(2) Allowing the judgment to stand would
substantially infringe the authority of another
tribunal or agency of government; or
"(3) The judgment was rendered by a court lacking
capability to make an adequately informed determination
of a question concerning its own jurisdiction and as a
matter of procedural fairness the party seeking to
avoid the judgment should have opportunity belatedly to
attack the court's subject matter jurisdiction."
Restatement at § 12 (emphasis added). 
The Restatement rule attempts to accommodate two
principles that, in some cases, may conflict:  the finality of a
judgment and the validity of a judgment.  As the drafters of the
Restatement put it:
"The principle of finality has its strongest
justification where the parties have had full
opportunity to litigate a controversy, especially if
they have actually contested both the tribunal's
jurisdiction and the issues concerning the merits.  Yet
the principle of finality rests on the premise that the
proceeding had the sanction of law, expressed in the
rules of subject matter jurisdiction. * * * If the
question [of subject matter jurisdiction as decided by
the tribunal whose jurisdiction is challenged] is
decided erroneously, and a judgment is allowed to stand
in the face of the fact that the court lacked subject
matter jurisdiction, then the principle of validity is
compromised.  On the other hand, if the judgment
remains indefinitely subject to attack for a defect of
jurisdiction, then the principle of finality is
compromised."
Id. at § 12 comment a. 
B. Oregon Cases
With that background in mind, we turn to the principal
Oregon cases upon which plaintiff relies in arguing that claim
preclusion should not bar its challenge to the Court of Appeals'
authority to render its decision in Lincoln Loan I.  Although, as
we shall see, those cases are easily distinguishable, we discuss
them here because they illustrate at least some of the principles
discussed above and narrow the issue that we must decide in this
case.  We later return to cases from other jurisdictions and to
the Restatement.
Plaintiff cites Hughes v. Aetna Casualty Co., 234 Or
426, 383 P2d 55 (1963), for the proposition that one may
challenge a void judgment at any time.  In that case, this court
held that an adoption decree was void as to the biological
mother, who never had received notice of the proceeding or
consented to the adoption.  Because the mother received no
notice, she had no opportunity to raise any legal challenge. 
Here, of course, both parties participated fully in the earlier
litigation, and plaintiff could have raised in the earlier case
every legal issue that it raises here.  
Dixie Meadows Co. v. Kight, 150 Or 395, 45 P2d 909
(1935), on which plaintiff also relies, is similar.  Plaintiff
cites that case as holding that "[o]ne may maintain a suit in
equity to set aside a final judicial determination in another
case where the former court lacked jurisdiction to enter the
judgment."  However, in Dixie Meadows, the defendant in the
earlier case never had been served properly, and the judgment at
issue was a default judgment.  This court stated that, even if
the defendant in the earlier case had received actual notice of
the proceeding, the plaintiff's service on the defendant had been
ineffective because it had not met statutory service
requirements.  Id. at 405.  For that reason, the court in the
earlier case did not acquire personal jurisdiction over the
defendant before entering the default judgment, and the defendant
therefore could seek to set aside that judgment in a later
proceeding.  In this case, in contrast, the parties were served
properly in the earlier case, and they litigated the case fully
at the trial and appellate levels.  Unlike the defendants in
Hughes and Dixie Meadows, plaintiff here hardly can claim that it
would be inequitable to enforce the litigated judgment in the
earlier case.
Plaintiff's other cases are similarly unhelpful.
Plaintiff cites Smith v. Cameron et al., 123 Or 501, 262 P 946
(1928), which states that, if a court lacks jurisdiction, its
judgment is a nullity.  Id. at 506.  In that case, the plaintiff
had filed an action, and the trial court had entered judgment for
the plaintiff, before the legislature had passed a statute
authorizing the relief that the plaintiff sought.  On appeal,
this court determined that the "action was prematurely commenced"
and reversed.  Smith thus stands for the unremarkable proposition
that a party to an action may appeal an adverse judgment and
challenge the trial court's jurisdiction to enter that judgment. 
Smith, however, provides no support for plaintiff's argument that
it should be permitted to mount a collateral attack on a final,
litigated judgment in a prior proceeding between the same
parties.
Finally, plaintiff relies on Hanley v. City of Medford,
56 Or 171, 108 P 188 (1910).  Plaintiff states that, in Hanley,
"both parties appeared and tried a case to a judge [who was]
subsequently found to lack authority to conduct that trial." 
Plaintiff asserts that, in Hanley, this court rejected the
argument that the jurisdictional defect should have been
litigated by appealing the challenged judgment and held instead
that it was permissible for a party to bring a later action in
equity to challenge the earlier judgment on the grounds that the
court that entered the judgment lacked subject matter
jurisdiction.  Although the procedural posture of Hanley was
unusual, the result and this court's rationale were not -- and
they provide little support for plaintiff.  Nevertheless, because
plaintiff relies on Hanley, and because Hanley is more similar to
this case than any of the other cases that plaintiff cites, we
discuss Hanley in some detail. (2)
Hanley involved a judgment entered in an earlier case
between the City of Medford and Hanley.  The city had filed a
condemnation complaint in circuit court, and Hanley had appeared
by filing a demurrer.  56 Or at 172.  The city, seeking a quick
trial of the matter, applied to the trial judge for a special
term of court, but the trial judge denied the application.  Id.
at 172-73.  At the request of a county official, the Governor,
without the approval or consent of the original trial judge,
appointed a different circuit court judge from a different
judicial district to try the case.  The case was tried, but
Hanley did not participate.  Id. at 173.  Hanley lost, and the
court entered a judgment condemning a portion of his property. 
Hanley immediately filed a separate case seeking to clear the
cloud on his title caused by the condemnation judgment and to
prevent the city from trespassing on his land.  He argued that
the Governor lacked the authority to appoint a different judge to
try the case and that the condemnation judgment therefore was
void.  Id. at 174.
We note first that plaintiff misstates in a critical
respect the facts of Hanley, making Hanley appear more similar to
this case than it actually is.  As described above, Hanley did
not "tr[y the case] to a judge subsequently found to lack
authority to conduct that trial."  Rather, after the trial was
turned over to a different judge that Hanley asserted lacked
jurisdiction, Hanley declined to participate.  In contrast, of
course, plaintiff here participated fully in the appeal of the
judgment that it now attacks, filing briefs, arguing the case in
the Court of Appeals, filing a petition for review, and filing a
petition for certiorari.  Plaintiff cannot assert credibly that
it stands in the same position as Hanley.
Second, the statement in Hanley on which plaintiff
relies to support its position that it may attack an earlier
judgment collaterally is a dictum, as this court decided that
case on a different ground.  This court briefly set out the
city's and Hanley's arguments before moving to a different
equitable basis for its disposition of the case:
"It is urged by the [city] that, although the judgment
is void, plaintiff's remedy was by appeal from the
supposed judgment, and that equity will not entertain a
suit to set aside or cancel a judgment that upon its
face is void.  But some of the cases last cited go so
far as to say that when there was no court no judgment
could by law have been pronounced; that what was done
under such circumstances was not only a nullity in the
ordinary significance of the term, when applied to
judgments of courts having no jurisdiction over the
subject-matter or the parties, but is not even the act
of a court, and therefore not susceptible of an appeal,
or subject to revision in an appellate tribunal. * * *
The writer is inclined to agree with this view of the
law, but it is not necessary to rely upon such
principle; for the plaintiff has alleged and shown that
the pretended judgment is a cloud upon his title, and
also that under cover thereof the defendant city is
about to trespass upon plaintiff's premises, and dig up
and destroy the substance of his estate.  This court
has held that, when the real purpose of invoking the
interposition of equity is to prevent a cloud being
cast upon plaintiff's title to real property,
jurisdiction will be assumed."
56 Or at 183-84 (emphasis added; citation omitted).
The dictum in Hanley leaves open the possibility that,
beyond cases where a court lacks subject matter jurisdiction but
nevertheless enters a judgment -- in which cases, the party
contesting jurisdiction must assert that claim on appeal -- some
purportedly judicial acts may be ignored because they were
decided by "no court."  Those rare cases are "not even the act of
a court, and therefore not susceptible of an appeal."  In those
circumstances, a party need not appeal the result, which is "no
judgment," but may pursue a collateral attack in a different
case.  However, nothing in Hanley suggests that the court
considered the factual situation there to come within that
exception.  Instead, the court held that it had equitable
jurisdiction to consider Hanley's effort to clear the cloud on
his title and prevent the city from trespassing on his property. 
Our review of the Oregon cases discloses no support for
plaintiff's argument that it may litigate a case to a final
appellate judgment in an Oregon court and then collaterally
attack the lawful existence of the court that issued the judgment
in a separate proceeding. 
C. Federal Cases
Federal cases applying claim preclusion principles
reach the same result.  The leading case is Stoll v. Gottlieb,
305 US 165, 59 S Ct 134, 83 L Ed 104 (1938), in which the United
States Supreme Court considered a state court judgment that had
declined to give res judicata effect to an earlier bankruptcy
court judgment.  The Court reversed, holding that even if the
bankruptcy court had lacked subject matter jurisdiction, that
court's final judgment barred later litigation between the
parties on the same issue:
"Every court in rendering a judgment, tacitly, if not
expressly, determines its jurisdiction over the parties
and the subject matter. * * *  We see no reason why a
court, in the absence of an allegation of fraud in
obtaining the judgment, should examine again the
question whether the court making the earlier
determination on an actual contest over jurisdiction
between the parties, did have jurisdiction of the
subject matter of the litigation."
305 US at 171-72.
In Stoll, the issue of subject matter jurisdiction was
litigated in the first proceeding, but in Chicot County Drainage
Dist. v. Baxter State Bank, 308 US 371, 60 S Ct 317, 84 L Ed 329
(1940), the Court explicitly extended the principle to cases in
which the issue could have been raised, but was not.  The rule is
now well settled in the federal courts:
"A party that has had an opportunity to litigate
the question of subject-matter jurisdiction may not
* * * reopen that question in a collateral attack upon
an adverse judgment.  It has long been the rule that
principles of res judicata apply to jurisdictional
determinations -- both subject matter and personal."
Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de
Guinee, 456 US 694, 702 n 9, 102 S Ct 2099, 72 L Ed 2d 492
(1982).  In summary, federal cases applying the principles of
claim preclusion do not support plaintiff's position that it may
now collaterally attack the earlier judgment.
D.  Other Authorities
As discussed above, although many cases discuss the
importance of subject matter jurisdiction or state that lack of
subject matter jurisdiction never can be waived, very few modern
decisions -- and none remotely similar to this case -- have
permitted a party to set aside a final, litigated judgment in an
earlier case for lack of subject matter jurisdiction, where the
issue was or could have been raised in the earlier proceeding.
Nevertheless, the doctrine of claim preclusion encompasses the
principle of the validity of a judgment, as well as the principle
of finality.  The Restatement recognizes that giving preclusive
effect to a prior judgment when the issue of subject matter
jurisdiction was not litigated and when there is substantial
question as to whether the court had subject matter jurisdiction,
poses a "genuine dilemma."  Restatement at § 12 comment d.  To
consider whether any substantial authority supports plaintiff's
position here, we return to the Restatement's discussion of the
exceptions to the general rule that a party to a final judgment
may not challenge the court's subject matter jurisdiction in a
later proceeding.  In doing so, we do not suggest that the
Restatement necessarily provides a complete or entirely accurate
statement of Oregon claim preclusion law, but instead rely upon
it as a useful articulation of contemporary principles of claim
preclusion. 
Section 12 of the Restatement, quoted above, sets out
three exceptions to the general rule, only one of which is even
arguably pertinent here:  that the "subject matter of the action
was so plainly beyond the court's jurisdiction that its
entertaining the action was a manifest abuse of authority." 
Restatement at § 12(1).  The issue before us thus narrows to
whether plaintiff has demonstrated that the Court of Appeals'
exercise of jurisdiction in reviewing the 1995 judgment and
issuing its decision in Lincoln Loan I was "a manifest abuse of
authority."  To state that proposition is to refute it.  This
case simply does not come within the exception to the preclusion
rule described in Restatement § 12(1), as we elaborate below.
First, the importance of finality in litigation means
that the exception to the claim preclusion rule applies in only
the most limited circumstances.  The Restatement explains the
background of Section 12 by noting that the "traditional
doctrine" gave greater emphasis to the principle of validity,
"asserting that a judgment of a court lacking subject matter
jurisdiction was 'void' and forever subject to attack." 
Restatement at § 12 comment a.  However, the "modern rule on
conclusiveness of determinations of subject matter jurisdiction
gives finality substantially greater weight than validity." 
Id. (3)  Moreover, as with other aspects of claim preclusion,
"[e]ven if the issue of subject matter jurisdiction has not been
raised and determined, the judgment after becoming final should
ordinarily be treated as wholly valid if the controversy has been
litigated in any other respect."  Id. at § 12 comment d.  The
exceptions to claim preclusion apply only in "very limited
circumstances," Restatement at § 69 comment a, and are "defined
in terms of conduct that usually is clearly manifested," such as
"plain excess of authority."  Id. at § 69 comment c. 
Second, as described in detail above, plaintiff argues
that the Court of Appeals "does not lawfully exist" because the
constitutional provision that the legislature relied upon in
establishing that court is invalid.  Plaintiff's theory, however,
is a novel and (literally) unprecedented challenge to a
constitutional provision, Article VII (Amended), that was adopted
almost a century ago.  In the ensuing years, the legislature has
referred to the people and the people have adopted nine different
amendments to Article VII (Amended), each of which was based on
the premise that Article VII (Amended) is a valid part of the
Oregon Constitution.  See Carey v. Lincoln Loan Co., 203 Or App
399, 408 n 8, 125 P3d 814 (2005), petition for review pending
(citing amendments). (4)  Moreover, this court has relied on
and applied Article VII (Amended), repeatedly affirming the
authority that that article confers on the legislature to create
courts and to define their jurisdiction.  See e.g., State v.
Harvey, 117 Or 468, 242 P 440 (1926) (legislature had
constitutional authority to create court of domestic relations);
In re Will of Pittock, 102 Or 159, 171-72, 199 P 633, on reh'g,
202 P 216 (1921) (confirming circuit court jurisdiction based on
statute passed pursuant to legislature's authority under Article
VII (Amended)).  Indeed, in discussing the legislature's
authority under that article, this court stated 50 years ago that
the legislature "may provide for an intermediate court of
appeals."  State ex rel Madden v. Crawford, 207 Or 76, 83, 295
P2d 174 (1956).  The governor, too, has assumed the validity of
Article VII (Amended), section 1, approving legislation passed
under that provision and appointing judges to courts created
under that authority.
That brief review demonstrates that the voters, the
legislature, this court, and the governor all have assumed, and
acted for decades on the assumption, that Article VII (Amended)
became a valid part of the Oregon Constitution in 1910.  Whatever
the merits of plaintiff's claim that Article VII (Amended) was
unconstitutionally adopted in 1910 -- a question that we need
not, and do not, decide in this case -- the discussion above
demonstrates that plaintiff has failed to show that "the subject
matter of the action" -- here, the Court of Appeals' review of
the 1995 judgment -- "was so plainly beyond the court's
jurisdiction that its entertaining the action was a manifest
abuse of authority."  
Our conclusion in that regard is buttressed by fact
that the earlier litigation that plaintiff attacks in this case
consistednot only of a proceeding before the Court of Appeals,
but also of proceedings before this court.  Even if plaintiff
were correct that the Court of Appeals does not lawfully exist,
plaintiff nevertheless had a statutory right to petition this
court for review of the Court of Appeals decision.  Plaintiff
never has questioned the validity of this court, and plaintiff's
present challenge to the Court of Appeals could have been raised
in a petition for review.  As discussed above, plaintiff did
petition for review, but did not challenge the Court of Appeals'
subject matter jurisdiction over the 1995 judgment.  In those
circumstances, the application of established claim preclusion
principles to bar plaintiff's attempt to collaterally attack the
prior judgment is not inequitable.
In sum, we hold that plaintiff's attempt to revisit an
issue that could have been fully litigated in the Court of
Appeals and in this court in the prior proceeding is simply
inconsistent with well-settled principles of claim preclusion. 
For those reasons, we conclude that the circuit court was correct
in entering judgment for defendant.
The judgment of the circuit court is affirmed.
1. In Lincoln Loan I, defendant asserted in its brief in
the Court of Appeals that that court had jurisdiction over the
appeal of the 1995 judgment.  In its brief, plaintiff stated that
it "accept[ed] Defendant's statement of the basis of and dates
governing its appeal."  Plaintiff separately invoked the
jurisdiction of the Court of Appeals in Lincoln Loan I by filing
a notice of cross-appeal challenging the trial court's order
granting a directed verdict in favor of certain individual
defendants in that case.
2. In discussing and distinguishing Hanley, we do not
necessarily approve the analysis and result in that case.  The
decision in Hanley and the dictum on which plaintiff relies
reflect an earlier and more limited view of claim preclusion that
gave less weight to the principle of finality than do the modern
cases in Oregon and other jurisdictions.  See generally
Restatement (Second) of Judgments § 12 comment a &amp; Reporter's
Note (1982) (describing differences between "traditional
doctrine" of res judicata and "modern rule on conclusiveness of
determinations of subject matter jurisdiction"). 
3. The Reporter's Note to Restatement § 12 cites Stoll v.
Gottlieb, 305 US 165, 59 S Ct 134, 83 L Ed 104 (1938), discussed
above, as "the leading modern case."
4. In Carey, the Court of Appeals rejected a challenge to
that court's jurisdiction similar to the one presented here,
holding that, even if the adoption of Article VII (Amended) was
originally flawed, subsequent amendments to that article
conferred authority on the legislature to create new courts by
statute, including the Court of Appeals.  203 Or App at 407-15.