Opinion ID: 658130
Heading Depth: 2
Heading Rank: 2

Heading: Waiver and Trial by Consent

Text: 22 The government contends that doctrine of res judicata barred Mrs. Shanbaum from asserting the innocent spouse defense at trial in the district court below. However, res judicata is an affirmative defense that can be waived. Smaczniak v. Commissioner, 998 F.2d 238, 242 (5th Cir.1993). And Mrs. Shanbaum asserts that the government failed to assert this defense in a timely manner. 23 Unfortunately, neither party can be said to have clearly or effectively raised the issues that form the heart of this dispute. First, the innocent spouse defense is an affirmative defense to the government's claim. Mrs. Shanbaum bore the burden of proof on each element of this defense at trial. Bokum v. Commissioner, 992 F.2d 1132, 1134 (11th Cir.1993). Thus, according to Federal Rule of Civil Procedure 8(c), Mrs. Shanbaum should have pleaded this issue in her original answer or amended her answer pursuant to Rule 15(a) in order to raise this defense. However, Mrs. Shanbaum did not take either of these steps. Indeed, she failed to raise the innocent spouse defense until she submitted to the district court her portion of the proposed pretrial order. Nevertheless, since the district court approved of and filed the pretrial order and since Rule 16(e) provides that the pretrial order controls the subsequent course of action, unless modified by a subsequent order, the presentation of the innocent spouse defense in the approved-of pretrial order was sufficient to bring that issue before the district court. Syrie v. Knoll Int'l, 748 F.2d 304, 308 (5th Cir.1984). 24 Of course, since Mrs. Shanbaum did not raise the innocent spouse defense in her answer, the government had no reason or opportunity to raise in its formal pleadings any affirmative defense of its own to Mrs. Shanbaum's defense, even a defense such as res judicata which Rule 8(c) requires to be pleaded. 4 However, once Mrs. Shanbaum raised the innocent spouse defense in her submissions to the pretrial order, the government had the opportunity and the obligation to raise the proper defense--res judicata--in its portion of the pretrial order. 25 However, the government failed to raise res judicata in this order. Instead, the government stated that Mrs. Shanbaum was collaterally estopped from asserting the innocent spouse defense as a defense to her income tax liability for certain years involved in the case. In a separate section of the pretrial order, the government listed as a Contested Issue of Law whether Mrs. Shanbaum may assert the 'innocent spouse' [defense] as a defense to the taxes assessed against her. However, the government failed to articulate the theory upon which this assertion was based. Thus, at first blush, the government seems to have failed to comply with Rule 8(c) and waived res judicata as a defense to Mrs. Shanbaum's innocent spouse defense. 26 Nevertheless, the fact that the government did not formally raise res judicata in the pretrial order does not end the inquiry. We have previously explained that  '[w]here the matter is raised in the trial court in a manner that does not result in unfair surprise, ... technical failure to comply precisely with Rule 8(c) is not fatal.'  Lucas v. United States, 807 F.2d 414, 417 (5th Cir.1986) (quoting Allied Chemical Corp. v. Mackay, 695 F.2d 854, 855-56 (5th Cir.1983)). Thus, if a party that asserts an affirmative defense (such as res judicata) fails to raise that defense in an operative pleading, that party does not necessarily waive the defense. Instead, if the party asserting the defense  'raised the issue at a pragmatically sufficient time, and [the party opposing the defense] was not prejudiced in its ability to respond,'  id. at 418, a court may hold that the defense was not waived. In Lucas, for example, we held that a purely legal matter (a statutory cap on the amount of damages that a medical malpractice plaintiff could recover) that was raised for the first time at trial, was raised at a pragmatically sufficient time. 27 In the present case, we conclude that the government gave sufficient notice of its intention to raise res judicata, also a legal matter, as a defense. In its trial brief, filed the same day as the pretrial order and served on Mrs. Shanbaum before the trial began, the government correctly argued that res judicata barred Mrs. Shanbaum from re-litigating the Tax Court decisions that determined her income tax and transferee liability. Since the defense of res judicata was brought to the attention of Mrs. Shanbaum and the district court on the same day that the pretrial order was filed, res judicata was raised on the same day that Mrs. Shanbaum raised her innocent spouse defense. Res judicata was thus raised at a pragmatically sufficient time. Moreover, both the government and Mrs. Shanbaum addressed the applicability of res judicata in post-trial briefs. Mrs. Shanbaum thus had an adequate opportunity to respond to the government's assertion of res judicata. Therefore, under the facts of this case, the government did not waive its res judicata defense by failing to raise the issue in its pleadings or in the pretrial order. 28 Moreover, we conclude that res judicata was tried with the implied consent of the parties. See Fed.R.Civ.P. 15(b). Whether an issue has been tried with the implied consent of the parties depends upon whether the parties recognized that the unpleaded issue entered the case at trial, whether the evidence that supports the unpleaded issue was introduced at trial without objection, and whether a finding of trial by consent prejudiced the opposing party's opportunity to respond. Haught v. Maceluch, 681 F.2d 291, 305-306 (5th Cir.1982); Jimenez v. The Tuna Vessel Granada, 652 F.2d 415, 421 (5th Cir.1981). Whether the parties recognized that the unpleaded issue entered the case at trial often depends on whether the evidence that supports the unpleaded issue is also relevant to another issue in the case. If the evidence that supports the unpleaded issue is also relevant to another issue in the case, the introduction of this evidence  'may not be used to show consent to trial of a new issue absent a clear indication that the party who introduced the evidence was attempting to raise a new issue.'  Haught, 681 F.2d at 305 (quoting International Harvester Credit Corp. v. East Coast Truck, 547 F.2d 888, 890 (5th Cir.1977)). As Professors Wright, Miller, and Kane have observed, the reasoning behind this rule is sound, for if evidence is introduced to support basic issues that have already been pleaded, the opposing party may not be conscious of its relevance to issues not raised by the pleadings unless that fact is made clear. 6A Charles A. Wright et al., Federal Practice and Procedure: Civil 2d Sec. 1493, at 32-35 (1990). 29 In this case, we believe that the factors which militate in favor of finding that res judicata was tried by consent are present. First, the government clearly indicated that it was relying on res judicata as a defense to the innocent spouse defense. See Haught, 681 F.2d at 305. Although Mrs. Shanbaum asserts that the evidence introduced to prove res judicata--the Tax Court decisions--led her to believe that the government was pursuing its pleaded collateral estoppel defense, the government's trial brief plainly brought res judicata to the attention of Mrs. Shanbaum before trial. Thus, Mrs. Shanbaum must have recognized that res judicata entered the case at trial. Second, Mrs. Shanbaum did not object to the introduction of the Tax Court decisions. Finally, Mrs. Shanbaum was not prejudiced in her ability to respond to the government's res judicata defense. There was no need for Mrs. Shanbaum to conduct additional discovery to defend against res judicata; all of the relevant factual and legal details were before the court at trial. Moreover, Mrs. Shanbaum filed a post-trial brief in which she addressed the government's assertion of res judicata. Thus, Mrs. Shanbaum not only had an adequate opportunity to respond, she did respond. 30 Mrs. Shanbaum's contention that the government waived res judicata simply because it mistakenly pleaded collateral estoppel in the pretrial order is unavailing. We do not adjudicate by labels. We adjudicate cases on the facts and law as they fit and support each other in the trial as the case progresses. In this case, the facts and law support the government's position that res judicata was adequately raised and in fact tried in the district court. The government is entitled to the benefit of res judicata. 31