Opinion ID: 2834098
Heading Depth: 2
Heading Rank: 3

Heading: Could the Claims have been Litigated?

Text: Daccach concedes that res judicata applies equally to class actions. He contends, however, that the claims he abandoned are procedurally barred from litigation in the class action by Rule 42, and therefore, res judicata cannot apply to preclude subsequent litigation of the claims that cannot be litigated through diligence in this class action suit. See Barr , 837 S.W.2d at 631 (“A subsequent suit will be barred if it arises out of the same subject matter of a previous suit and which through the exercise of diligence, could have been litigated in a prior suit .” (emphasis added)). To achieve certification despite his abandonment of class claims, Daccach argues for a rule that would preclude later litigation of only those causes of action that could have been certified in the prior class action. For reasons we explain, we decline to adopt Daccach’s proposed rule. Most courts agree with Daccach’s concession that the basic principles of res judicata apply to class actions. See Cooper , 467 U.S. at 874 (and authorities cited therein); Hansberry , 311 U.S. at 42; Ben-Hur , 255 U.S. at 367; Beeson , 22 S.W.3d at 405. However, only a few cases can be read to support Daccach’s contention that only claims that could have been brought in a class action will be barred from subsequent litigation. One line of cases, followed by the court of appeals below and two other Texas courts of appeals, holds that under Federal Rule of Civil Procedure 23(c)(4), or identical Texas Rule of Civil Procedure 42(d), parties may bring or maintain a class action with respect to specific issues and will not suffer the preclusive effect of res judicata for those claims not actually litigated as unsuitable for class treatment. See, e.g. , Sullivan , 79 F.R.D. at 265 (holding that splitting claims that are amenable to class treatment is “perfectly appropriate” in order to realize the savings of resources of courts and parties that Rule 23 is designed to facilitate); Compaq Computer Corp. v. Lapray, 79 S.W.3d 779, 793 (Tex. App.—Beaumont 2002), rev’d on other grounds , 135 S.W.3d 657 (Tex. 2004); Microsoft Corp. v. Manning , 914 S.W.2d 602, 610 (Tex. App.—Texarkana 1995, writ dism’d); see also 5 Herbert B. Newberg & Alba Conte, Newberg on Class Actions §16.22 (4th ed. 2002). The reasoning is based on Federal Rule of Civil Procedure 23(c)(4)(A) and Texas Rule of Civil Procedure 42(d)(1): “an action may be brought or maintained as a class action with respect to particular issues.” Some commentators characterize this approach as a “sophisticated transactional approach” that limits the basic transactional approach of res judicata and “includes trial convenience in its calculus.” 18A Charles Alan Wright et al., Federal Practice and Procedure § 4455 (2d ed. 2002) (suggesting the approach is supported by Section 24(2) of the Restatement (Second) of Judgments, which requires that a “transaction” must “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” (emphasis added)). Daccach suggests his proposed rule is consistent with Texas jurisprudence on res judicata, relying on some of our cases not involving class actions: Pustejovskey v. Rapid-Am. Corp. , 35 S.W.3d 643, 651 (Tex. 2000); Getty Oil v. Ins. Co. of N. Am. , 845 S.W.2d 794, 801 (Tex. 1992). [10] These cases are factually and legally distinguishable. In Pustejovskey , we addressed “whether a plaintiff may bring separate actions for separate latent occupational diseases caused by exposure to asbestos.” 35 S.W.3d at 644. In addressing the single action rule as a species of res judicata, Justice Gonzales noted that “the transactional approach set out in Barr does not necessarily penalize a plaintiff for not bringing a claim arising out of the same facts that nonetheless could not have been litigated in the initial action.” Id . at 651. But one of the reasons we adopted a separate accrual rule in that case—and, by implication, the reason the claim could not have been litigated in the prior action—was that the damage-causing injury had not yet been discovered. Id . at 652. In this case we are not faced with latent injuries giving rise to claims that could not have been litigated in a prior action due to lack of discovery. The claims in this case were discovered or discoverable and then abandoned by Daccach to try to achieve class certification. In Getty Oil , we held that a third party’s claim against a tortfeasor’s insurers was not precluded by prior litigation against the tortfeasor because, under the “no action” clause of the insurance policy and Texas Rule of Civil Procedure 38(c), the third party could not sue the insurer until there was a judgment against the tortfeasor. 845 S.W.2d at 801. Res judicata did not bar the second suit because the third party was contractually precluded from litigating the claim in the prior suit. No similar contractual agreement or rule governs in this case. Daccach also relies on the following statement made by the Fifth Circuit: “If the court rendering judgment lacked subject-matter jurisdiction over a claim or if the procedural rules of the court made it impossible to raise a claim, then it is not precluded.” Browning v. Navarro , 887 F.2d 553, 558-59 (5th Cir. 1989) (citing Restatement (Second) of Judgments § 26(1)(c) (1982)); see also Montgomery v. Blue Cross & Blue Shield of Tex. Inc. , 923 S.W.2d 147, 150 (Tex. App.—Austin 1996, writ denied) (citing Browning , 887 F.2d at 558-59). Similarly, the United States Supreme Court cited the Restatement (Second) of Judgments, which states that a second action arising from the same facts may be brought if “[t]he plaintiff was unable to rely on a certain theory of the case or to seek a certain remedy or form of relief in the first action because of the limitations on the subject matter jurisdiction of the courts or restrictions on their authority to entertain multiple theories or demands for multiple remedies or forms of relief in a single action . . . .” Thomas v. Wash. Gas Light Co. , 448 U.S. 261, 283 n.29 (1980) (quoting Restatement (Second) of Judgments § 61.2(c) (Tent. Draft No. 5, 1978)); see also Gunnells v. Healthplan Servs., Inc. , 348 F.3d 417, 432 (4th Cir. 2003) (rejecting contention that plaintiffs’ individual direct claims would be barred because a class action, “of course, is one of the recognized exceptions to the rule against claim-splitting”) (citing 18 James Wm. Moore et al., Moore’s Federal Practice § 131.40[3][e][iii] (3d ed. 1999)); Restatement (Second) of Judgments § 26(1)(c) (1982). We are not persuaded by this argument. First, the issue in Browning and Montgomery was whether the original decision-maker had subject matter jurisdiction to adjudicate the claim sought to be relitigated in district court. In Browning , the court barred litigation of a subsequent fraud claim because the bankruptcy court had subject matter jurisdiction to hear the claim in the prior suit by the party. 887 F.2d at 558-59. In Montgomery , the plaintiff was not barred from litigating extra-contractual claims because the administrative agency that presided over the prior suit did not have jurisdiction to hear those claims. 923 S.W.2d at 150. These rulings turned on a lack of jurisdiction and do not inform our reasoning in this case because rule 42 of the Texas Rules of Civil Procedure does not affect a trial court’s subject matter jurisdiction. Second, we do not believe section 26(1)(c) of the Restatement speaks to the class action context. Nothing forces plaintiffs seeking damages into a class suit. They may decide to opt out and pursue their claims individually with separate counsel or decide that the size of the claim does not justify the cost of pursuing it. On the other hand, plaintiffs may choose to litigate their claims under Rule 42 because it provides a more efficient and perhaps less expensive means of litigating certain claims. It is the class representative’s choice to seek certification, and the putative class members’ decision not to opt out of the class, that restricts their ability to rely on certain theories of recovery that are unsuitable for class treatment. Any restrictions that class action requirements place on a trial court’s ability to entertain specific theories of recovery in a class suit arise solely because of the choice to seek class certification. By this choice class members may put at risk their ability to litigate certain other claims not suitable for class treatment. These restrictions follow the individual decisions of the class members and are distinct from the jurisdictional restrictions that may be placed on a bankruptcy court or administrative agency, to which we believe section 26(1)(c) of the Restatements (Second) of Judgments more appropriately applies. We also are unpersuaded that an exception from res judicata principles for claims abandoned as unsuitable for class treatment is supported by the asserted precedent from the United States Supreme Court. In Cooper v. Federal Reserve Bank of Richmond , the Supreme Court announced that general principles of res judicata apply in class actions, but nevertheless determined that for the Title VII claims brought in a class suit under rule 23 of the Federal Rules of Civil Procedure, certain plaintiffs were not barred from subsequently bringing individual discrimination claims. 467 U.S. 867 (1984). Four employees sought certification of a class of employees alleged to have been discriminated against by a bank that engaged in “policies and practices” of racial discrimination in violation of Title VII Section 1981. Id . at 869-70. Upon receiving notice, six other employees joined the class. Id . at 870-71. After a trial in which all named plaintiffs testified, the district court found the bank had engaged in a pattern and practice of racial discrimination for certain levels of employees, but found as to other levels of employees that the discrimination was not pervasive enough to order relief. Id . at 870-72. The six joining class members moved to intervene to allege that each had been individually denied promotions for discriminatory reasons. Id . at 872. The motions were denied, and five of the six employees then filed a separate action against the Bank alleging violations of Section 1981. Id . On interlocutory appeal of the separate action, the federal circuit court concluded the doctrine of res judicata precluded the plaintiffs from maintaining their individual race discrimination claims because they were bound by the judgment in the class action. See EEOC v. Fed. Reserve Bank of Richmond , 698 F. 2d 633, 674 (4th Cir. 1983). The U.S. Supreme Court reversed. The Court began by stating “[t]here is of course no dispute that under elementary principles of prior adjudication a judgment in a properly entertained class action is binding on class members in any subsequent litigation.” Cooper , 467 U.S. at 874. The holding that basic principles of res judicata apply to class actions was part of a lengthy discussion of the “crucial difference between an individual’s claim of discrimination and a class action alleging a general pattern or practice of discrimination.” Id . at 876. The suggestion is that a class claim for a pattern or practice of discrimination involves factual issues distinct from those in a class member’s individual discrimination lawsuit. Id . at 876-77. The Court also expressly noted that the district court “pointedly refused to decide the individual claims” of the plaintiffs now seeking adjudication of the claims in a separate action. Id . at 881. According to the Court, therefore, the court of appeals erred in attaching preclusive effect to the class action because it was not dispositive of the individual claims alleged in the separate action. Id . at 880. We read Cooper not as an exception to res judicata but as an application of its elements—a subsequent claim might not be barred if it does not involve the same factual issues that were litigated in the prior class action, a situation that can arise in the unique context of Title VII pattern and practice litigation. See, e.g. , Munoz v. Orr , 200 F.3d 291, 307 (5th Cir. 2000) (“We note that the failure of proof on the class claim does not bar all individual class members from bringing their own suits, provided that they do not base their claims solely on issues already adjudicated in this action and that they can show individualized proof of discrimination.”) (citing Cooper , 467 U.S. at 880); Allison v. Citgo Petroleum Corp. , 151 F.3d 402, 425 n.23 (5th Cir. 1998) (distinguishing Cooper and stating that a subsequent disparate impact class action will be barred by res judicata and collateral estoppel because it will inevitably contain the same factual issues as were litigated in the pattern or practice class action); see also Marshall v. Kirkland , 602 F.2d 1282, 1298 (8th Cir. 1979) (pre- Cooper case indicating that subsequent individual discrimination claims will not be precluded because the issues were not actually litigated in prior class action and there was no notice to the b(2) class that such claims might be waived); Tobias Barrington Wolff, Preclusion in Class Action Litigation , 105 Colum. L. Rev. 717, 727 (2005) (arguing that the result in Cooper “may represent the correct rule in a Title VII class action, [but] it does not flow inevitably from an application of basic claim preclusion principles”). In addition, we find it significant that the U.S. Supreme Court emphasized the district court’s pointed refusal to decide the plaintiff’s individual claims. Cooper , 467 U.S. at 881. It would hardly seem appropriate to bar subsequent litigation of a dispute that a prior court refused to decide. In this respect, we find Texas Rule of Civil Procedure 42(d) instructive. Rule 42(d) provides that “an action may be brought or maintained as a class action with respect to particular issues.” The rule, like its federal counterpart, “is a housekeeping rule that allows courts to sever the common issues for a class trial.” Castano v. Am. Tobacco Co. , 84 F.3d 734, 746 n.21 (5th Cir. 1996). But, while we agree that Rule 42(d) allows a trial court to consider certifying a class whose representative has abandoned or split claims, we decline to take the further step of excepting a final judgment in such a class action from the principles of res judicata. Class members may be precluded from asserting those claims in subsequent individual litigation if they arose from the same transaction or subject matter and could have been litigated in the prior suit. See Barr , 837 S.W.2d at 631. Aggregation of claims in an appropriate class action is a more efficient way to resolve numerous disputes at once. However, efficiency is defeated if the tactfully structured dispute that is finally resolved in class suits may be relitigated in the same or other forums. We caution, also, that Rule 42(d) cannot be used to manufacture compliance with the certification prerequisites. See Castano , 84 F.3d at 745 n.21 (“A district court cannot manufacture predominance through the nimble use of [Federal Rule of Civil Procedure 23(c)(4)].”). As explained below, the splitting or abandoning of certain claims may affect certification of the class in other ways.