Opinion ID: 685627
Heading Depth: 1
Heading Rank: 7

Heading: Injunction Against Florida Plaintiffs

Text: 120 The District Court enjoined the Florida plaintiffs from pursuing further litigation or arbitration against all defendants as to issues actually decided by the District Court. The Florida and Becherer plaintiffs challenge this ruling on appeal. 121 While plaintiffs argue at length that the injunction was improper because putative class members cannot be bound absent notice and an opportunity to opt out, this focus fails to recognize that the District Court's ruling was premised on the concepts of res judicata and collateral estoppel, which are separate and independent of class certification. If either of those doctrines is applicable, the formalities of class certification are irrelevant. 122 As the District Court recognized, both res judicata and collateral estoppel can be used to bind a nonparty only if the nonparty was in privity with a party to the prior action. A nonparty will be considered in privity, or sufficiently close to a party in the prior suit so as to justify preclusion, in three situations:First, a non-party who has succeeded to a party's interest in property is bound by any prior judgments against the party.... Second, a non-party who controlled the original suit will be bound by the resulting judgment.... Third, federal courts will bind a non-party whose interests were represented adequately by a party in the original suit. 123 Southwest Airlines Co. v. Texas Int'l Airlines, 546 F.2d 84, 95 (5th Cir.1977) (citations omitted). The first situation is inapplicable here. The District Court glossed over the second scenario and focused on the third issue: adequate representation. 124 The doctrine of adequate representation is also known as virtual representation. This concept has been developed primarily by the Fifth Circuit. 18 Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure Sec. 4457 (1981). In the words of the Fifth Circuit, the doctrine of virtual representation 125 requires more than a showing of parallel interest or, even, a use of the same attorney in both suits.... The question of virtual representation is one of fact and is to be kept within strict confines. ... Virtual representation demands the existence of an express or implied legal relationship in which parties to the first suit are accountable to non-parties who file a subsequent suit raising identical issues. 126 Benson and Ford, Inc. v. Wanda Petroleum Co., 833 F.2d 1172, 1175 (5th Cir.1987) (citations omitted). A leading treatise also agrees with the need to keep the doctrine within strict confines: 127 Some decisions and commentaries have begun to develop a theory of nonparty preclusion that is often identified as virtual representation. The broadest form of this theory would preclude relitigation of any issue that had once been adequately tried by a person sharing a substantial identity of interest with a nonparty. Justification for this result is found in the general theory of representation. Adoption of the theory in this form could expand nonparty preclusion far beyond current practice. If one of fifty persons injured in a bus accident should lose an action against the bus company, for example, all of the other passengers could be bound by any adverse findings. Actual use of virtual representation theory has not yet begun to approach such expansive consequences, and it does not seem either desirable or likely that it will carry so far. 128 .... 129 A narrow role may remain for virtual representation, so long as adequate litigation remains the central requirement. Some cases may present substantial elements of several different grounds of nonparty preclusion, without clearly justifying application of any one ground. Careful application of the virtual representation label may provide a convenient means of aggregating these separate elements in special circumstances that make relitigation especially unattractive.... Close nonlitigating relationships with a party, participation, apparent acquiescence, and perhaps deliberate maneuvering to avoid the effects of the first action are among the factors to be weighed. 130 . . . . . 131 18 Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure Sec. 4457 (1981). A review of the case law reveals that courts will refuse to apply virtual representation simply to preclude a nonparty from relitigating issues that have been lost after vigorous advocacy by a party who seems to hold an interest identical to the interests of the nonparty. Id. 132 In support of its finding that the Florida plaintiffs were adequately represented by the Becherer plaintiffs, the District Court declared: 133 The relationship between Florida plaintiffs and the named plaintiffs is sufficiently close to support a finding of privity. Both are in the group of investors that purchased units in The Registry Hotel. Both have the same interest in the case, i.e., both were identically situated and both raise the same causes of action. 134 Becherer v. Merrill Lynch, 809 F.Supp. 1259, 1268-69 (E.D.Mich.1992). As these words illustrate, the District Court used an impermissibly broad definition of adequate or virtual representation. 135 Accordingly, we must reverse the District Court's finding of privity and vacate its ensuing injunction. The briefs submitted by the parties on appeal, however, demonstrate a strong possibility that this case may yet be an appropriate one for the application of res judicata and collateral estoppel. Merrill Lynch contends that the Florida plaintiffs, through the Association of Unit Owners, authorized, financed, and controlled the investigation and prosecution of the Becherer plaintiffs' suit, including hiring an attorney and arranging to pay him a combination retainer and contingency fee. 136 Because many of the facts discussed in the briefs are in dispute and because the issue was not fully developed and is essentially factual, we are unable to decide it here. Instead we remand the case to the District Court for factual findings under the narrower theory of virtual representation articulated above.