Opinion ID: 1861206
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Heading: The Federal Law of Res Judicata

Text: Our conclusion that federal law supplies the controlling rule requires us to determine the content of that rule. There are competing views among courts and commentators as to the source and substance of the applicable federal rule where, as here, the prior judgment has been rendered by a federal court pursuant to its diversity jurisdiction. Some authorities maintain that the law of the state in which the federal court sat, applied as surrogate federal law, should determine the res judicata effects of a federal diversity judgment. See, e.g., Provident Tradesmens Bank & Trust Co. v. Lumbermens Mutual Cas. Co., 411 F.2d 88 (3d Cir.1969); Note, supra. Others, however, have argued that the intramural federal law, i.e., the federal common law, should govern the effects of diversity judgments, as is the case with judgments by federal courts exercising federal question jurisdiction. See, e.g., Aerojet-General Corp. v. Askew, 511 F.2d 710 (5th Cir.), appeal dismissed and cert. denied, 423 U.S. 908, 96 S.Ct. 210, 46 L.Ed.2d 137 (1975); Restatement (Second) of Judgments § 87 (1982); Degnan, supra. Yet most who advocate a uniform rule also call for exceptions that would allow a state court, when it is the second forum, to apply its own state rules instead of the federal rules to matters not affecting the core principles of res judicata. Aerojet-General Corp. v. Askew, supra, at 716 n. 8; Restatement (Second) § 87 comment b; Vestal, Res Judicata/Preclusion by Judgment: The Law Applied in Federal Courts, 66 Mich.L.Rev. 1723, 1744-45 (1968). In the present case, however, we need not choose between the competing rules or concern ourselves with the suggested exceptions. This case presents a fundamental question involving a basic element of res judicata: What is the scope of a prior judgment's preclusion of subsequent claims? On this question, the rules offered by the two possible sources, the intramural federal law and the law of New York (the state in which the diversity court sat) are identical. In both the New York and federal systems, a valid final judgment may bar a party from seeking certain remedies whether the party's right to those remedies was actually litigated in the earlier proceeding or not, if the later-asserted right is found to arise out of the same transaction as the claim or cause of action presented in the earlier proceeding. Federated Dep't Stores v. Moitie, 452 U.S. 394, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981); Reilly v. Reid, 45 N.Y.2d 24, 407 N.Y.S.2d 645, 379 N.E.2d 172 (1978); see also 1B Moore's Federal Practice, supra, ¶ 0.410[1], at 359; 18 Wright, Miller & Cooper, supra, § 4406. The test for determining the scope of a claim or cause of action identifies those issues that should have been raised at the earlier proceeding. For the purposes of delineating the scope of a prior claim, New York has adopted a transactional analysis based on that of the Restatement (Second) of Judgments § 24. See, e.g., O'Brien v. City of Syracuse, 54 N.Y.2d 353, 445 N.Y.S.2d 687, 429 N.E.2d 1158 (1981). Section 24 provides: (1) When a valid and final judgment rendered in an action extinguishes the plaintiff's claim pursuant to the rules of merger or bar (see §§ 18, 19), the claim extinguished includes all rights of the plaintiff to remedies against the defendant with respect to all or any part of the transaction, or series of connected transactions, out of which the action arose. (2) What factual grouping constitutes a transaction, and what groupings constitute a series, are to be determined pragmatically, giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage. The majority of federal appellate courts have adopted this transactional analysis as well. See, e.g., Manego v. Orleans Board of Trade, 773 F.2d 1 (1st Cir.1985), cert. denied, 475 U.S. 1084, 106 S.Ct. 1466, 89 L.Ed.2d 722 (1986); United States v. Athlone Industries, 746 F.2d 977 (3d Cir.1984); Nilsen v. City of Moss Point, 701 F.2d 556 (5th Cir.1983); Car Carriers, Inc. v. Ford Motor Co., 789 F.2d 589 (7th Cir.1986); Poe v. John Deere Co., 695 F.2d 1103 (8th Cir. 1982); Sidney v. Zah, 718 F.2d 1453 (9th Cir.1983); U.S. Industries, Inc. v. Blake Constr. Co., 765 F.2d 195 (D.C.Cir.1985); Young Engineers, Inc. v. United States Int'l Trade Comm'n, 721 F.2d 1305 (Fed. Cir.1983); 1B Moore's Federal Practice, supra, 0.410[1], at 359; 18 Wright, Miller & Cooper, supra, § 4407; Annotation, Proper Test to Determine Identity of Claims for Purposes of Claim Preclusion by Res Judicata under Federal Law, 82 A.L.R. Fed. 829, 837 (1987). See also Nevada v. United States, 463 U.S. 110, 130 n.12, 103 S.Ct. 2906, 2918 n.12, 77 L.Ed.2d 509, 525 n.12 (1983) (declining to decide the proper standard but referring to the test of § 24 as a more pragmatic approach). We read these cases as holding, with at least the tacit approval of the Supreme Court, that the transactional analysis embodied in Restatement (Second) § 24 defines the scope of a claim under the federal common law. Because the Restatement's transactional approach applies under both New York and intramural federal law, we apply this definition to the facts of this case.