Verdicts and judgments - Effect; claim and issue preclusion

Learning Outcomes

This article explains how verdicts and judgments operate in civil litigation for MBE purposes, including:

• Differentiating claim preclusion (res judicata) from issue preclusion (collateral estoppel) and recognizing the policy justifications behind each doctrine.
• Identifying when a judgment is “final” and “on the merits,” and distinguishing dismissals that do not support preclusion (e.g., lack of jurisdiction, improper venue, failure to join indispensable parties).
• Determining whether two suits involve the “same claim” by applying the modern transaction-or-occurrence test to fact patterns involving contracts, torts, and mixed theories.
• Applying claim preclusion to bar later actions that attempt to relitigate or repackage claims that were, or could have been, raised in the first lawsuit.
• Applying issue preclusion to prevent relitigation of discrete issues actually litigated and necessarily decided in prior cases, including in vicarious-liability and multiparty scenarios.
• Evaluating when nonmutual issue preclusion (defensive or offensive) may be used, with particular attention to fairness factors tested on the MBE.
• Analyzing how default and consent judgments affect claim and issue preclusion differently, and spotting common exam traps involving these judgments.
• Determining which jurisdiction’s preclusion law governs in state–federal interactions, based on the Full Faith and Credit Act and federal common-law principles.
• Using structured steps and checklists to approach preclusion questions efficiently under exam time pressure.

MBE Syllabus

For the MBE, you are required to understand how verdicts and judgments affect later litigation, with a focus on the following syllabus points:

• Definitions and purposes of claim preclusion (res judicata) and issue preclusion (collateral estoppel)
• Elements for each doctrine: same parties, same claim or issue, final judgment on the merits
• Scope of claims and issues barred, including “could have been raised” claims
• Mutual and nonmutual issue preclusion (defensive and offensive uses)
• Preclusion in multiparty and vicarious-liability situations
• Choice of law: which jurisdiction’s preclusion rules apply in state–federal interactions

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is NOT required for claim preclusion to apply?
   1. Final judgment on the merits
   2. Same parties (or their privies)
   3. Same cause of action
   4. The same court as the first action
2. Issue preclusion (collateral estoppel) prevents relitigation of:
   1. Any claim that could have been brought in the first action
   2. Any issue actually litigated and essential to a valid, final judgment
   3. Any issue mentioned in the pleadings
   4. Only issues decided by a jury
3. A federal court must give a state court judgment the same preclusive effect as:
   1. Federal law would require
   2. The state where the federal court sits would require
   3. The state that rendered the judgment would require
   4. The parties agree
4. Which of the following is an exception to issue preclusion?
   1. The issue was not actually litigated
   2. The party to be bound had a full and fair opportunity to litigate
   3. The issue was essential to the judgment
   4. The parties were adversaries in the first action

Introduction

A verdict or judgment in one lawsuit can control what may be litigated in a later lawsuit. The doctrines of claim preclusion (res judicata) and issue preclusion (collateral estoppel) determine when a prior judgment bars relitigation of entire claims or specific issues.

On the MBE, these doctrines often appear in questions about:

• Multiple suits arising from the same accident
• Suits against employers after prior suits against employees (and vice versa)
• Later litigation in a different court system (state vs. federal)
• Attempts by new plaintiffs to “piggyback” on earlier judgments

Key Term: Claim Preclusion (Res Judicata)
A doctrine that bars a party from relitigating a claim that was or could have been raised in a prior action between the same parties (or their privies) that resulted in a valid, final judgment on the merits.

Key Term: Issue Preclusion (Collateral Estoppel)
A doctrine that prevents relitigation of an issue of fact or law that was actually litigated and necessarily decided in a prior valid, final judgment, when the party to be bound had a full and fair opportunity to litigate.

Key Term: Final Judgment on the Merits
A judgment that resolves the parties’ substantive rights and leaves nothing for the court to do but execute the judgment. Dismissals for lack of subject matter jurisdiction, improper venue, or failure to join an indispensable party are not on the merits.

Before turning to the doctrines, remember:

• Claim preclusion is claim-based: “Could this whole claim have been raised last time?”
• Issue preclusion is issue-based: “Was this precise issue already litigated and decided?”

The rest of this article explores how each doctrine works, how they differ, and how to recognize typical MBE traps.

CLAIM PRECLUSION (RES JUDICATA)

Claim preclusion bars a party from bringing a second lawsuit on the same claim or cause of action after a final judgment on the merits in a prior suit involving the same parties (or their privies).

Key Term: Merger and Bar
When the plaintiff wins the first case, the claim is said to “merge” into the judgment; when the plaintiff loses, the claim is “barred.” In either situation, the plaintiff cannot sue again on the same claim.

Requirements for Claim Preclusion

Claim preclusion applies if:

• Valid, final judgment on the merits

  • Includes:
    • Judgment after trial
    • Summary judgment
    • Judgment as a matter of law
    • Default judgments
    • Dismissals “with prejudice” and most Rule 12(b)(6) failures to state a claim
  • Excludes:
    • Dismissals for lack of subject matter or personal jurisdiction
    • Improper venue
    • Failure to join an indispensable party
    • Certain clearly “without prejudice” dismissals

• Same parties or their privies

  • The parties in both actions must be identical or in privity.
  • Examples of privity:
    • Successors in interest (e.g., grantee of land after a quiet-title judgment)
    • Representative and represented (e.g., trustee/beneficiary; executor/estate; class representative/class members)
    • Vicarious-liability relationships (employer/employee, principal/agent, insurer/insured) where the second suit is based on the same conduct.

Key Term: Privity
A legal relationship between a party to the original action and a nonparty that is close enough to justify binding the nonparty to the result of the first case.

• Same claim or cause of action
  • Modern majority view (and MBE approach): all rights to relief arising out of the same transaction or occurrence constitute a single “claim.”
  • A “transaction or occurrence” usually means the same event or series of related events (e.g., the same car accident or contract).

Key Term: Same Transaction or Occurrence
A set of facts so related in time, space, origin, or motivation that they form a convenient trial unit—commonly the touchstone for defining the “same claim” for preclusion purposes.

Scope of Claim Preclusion

Claim preclusion bars:

• All claims actually litigated in the first action; and
• All claims that could have been raised in the first action if they arise from the same transaction or occurrence and were within the court’s jurisdiction.

This is where many MBE traps appear. If the plaintiff had one opportunity to litigate everything arising from the accident or contract, they generally do not get a second chance by changing legal theories or types of damages.

Common applications:

• Property damage and personal injury from the same accident are part of one claim.
• Contract and tort theories arising from the same contract (e.g., breach of contract and fraud regarding that contract) usually form one claim.

Worked Example 1.1

A journalist sues a grocer in State B state court for damage to his antique car from a collision. A jury finds the grocer negligent and awards $95,000. Six months later, the journalist sues the grocer in State B federal court (diversity) for$125,000 for personal injuries from the same accident. The grocer moves to dismiss.

Answer:
The federal court should dismiss under claim preclusion. The first case involved a valid, final judgment on the merits, between the same parties, arising out of the same accident. Under the transaction test, property damage and personal injury claims from a single accident are part of the same claim and must be joined. The journalist cannot split his cause of action into two suits.

Exceptions and Limitations to Claim Preclusion

Claim preclusion does not apply, or may be limited, when:

• Jurisdictional limitations in the first court
  • If the first court lacked subject matter jurisdiction over the second claim (e.g., a small-claims court that could not hear a larger contract claim), a later action in a court of competent jurisdiction may not be precluded.
• Express reservation by the court
  • If the first court expressly reserves the plaintiff’s right to bring a second suit on a particular claim, preclusion will not bar that suit.
• Continuing or recurring obligations
  • New breaches of a continuing obligation (e.g., monthly royalty payments) after the first judgment generally give rise to new claims not barred by the earlier case.
• Change in law alone
  • A subsequent change in law is normally not enough to avoid claim preclusion; the plaintiff is generally stuck with the result of the first case.

Default and Consent Judgments

• Default and consent judgments are on the merits for claim preclusion: the loser cannot later sue on the same claim just because there was no trial.
• However, they do not satisfy the “actually litigated” requirement for issue preclusion, discussed below.

Worked Example 1.2

P sues D in federal court for breach of contract and obtains a default judgment when D fails to answer. P then sues D in state court for fraud based on the same contract, seeking additional damages.

Answer:
The second suit is barred by claim preclusion. The default judgment was a valid, final judgment on the merits, the same parties are involved, and both breach and fraud claims arise from the same transaction—the contract. P should have raised the fraud claim in the first suit.

ISSUE PRECLUSION (COLLATERAL ESTOPPEL)

Issue preclusion prevents relitigation of specific issues that were actually litigated and necessarily decided in a prior valid, final judgment.

Requirements for Issue Preclusion

Issue preclusion applies if:

• Same issue

  • The issue in both actions is identical in all material respects.

• Actually litigated and determined

  • The issue was raised, contested, and decided in the prior action.
  • Default judgments and most consent judgments do not satisfy this requirement.

• Essential to the judgment

  • The issue was necessary to the prior judgment; the judgment could not have been reached without deciding that issue.

Key Term: Essential to the Judgment
An issue is essential if the first court’s judgment logically depended on its resolution; if the judgment would have been the same regardless of how the issue was decided, it is not essential and not preclusive.

• Valid, final judgment

  • As with claim preclusion, the prior judgment must be valid and final.

• Full and fair opportunity to litigate

  • The party against whom preclusion is asserted must have been a party (or in privity) in the prior case and must have had a full and fair opportunity to litigate the issue.

Mutuality and Nonmutual Issue Preclusion

Historically, only someone who was a party or in privity in the first case could both be bound by and use issue preclusion (mutuality). Modern law relaxes this for the user side.

Key Term: Nonmutual Issue Preclusion
Preclusion asserted by or against a person who was not a party to the first action.

• Due process still requires that the party being bound was a party (or privy) to the first suit.
• Many courts now allow nonparties to use a prior judgment in their favor, especially defensively.

Key Term: Defensive Nonmutual Issue Preclusion
A new defendant uses a prior judgment to prevent the plaintiff from relitigating an issue the plaintiff previously lost against someone else.

Key Term: Offensive Nonmutual Issue Preclusion
A new plaintiff uses a prior judgment to establish an issue against the same defendant who lost that issue in the first case.

Courts are more willing to allow defensive nonmutual preclusion than offensive nonmutual preclusion.

Factors courts consider for offensive use (Parklane-style fairness test):

• Did the defendant have a full and fair opportunity to litigate in the first case?
• Did the defendant have an incentive to litigate vigorously?
• Are there prior inconsistent judgments?
• Could the new plaintiff easily have joined the first action?

Worked Example 1.3

A mother sues a company in federal court, alleging its reusable snack bags, which contained triclosan, weakened her son’s immune system and caused his illness. After a bench trial, the judge finds that the amount of triclosan used in the bags is sufficient to weaken a child’s immune system and that the boy’s illness resulted from that weakening, and enters judgment for the mother.

In another action in the same federal court, a father sues the same company for his daughter’s similar illness after using the bags. The father moves for partial summary judgment, seeking to prevent the company from relitigating whether the amount of triclosan is sufficient to weaken a child’s immune system.

Answer:
The court should grant the motion. The triclosan-to-immune-system issue is identical, actually litigated, and essential to the first judgment, and the company had a full and fair opportunity to litigate it. The father is using offensive nonmutual issue preclusion, which modern federal practice permits when it is fair under the circumstances.

Defaults, Consents, and “Actually Litigated”

Issue preclusion does not apply when:

• The issue was decided by default or consent (no actual litigation).
• The issue was decided as an alternative ground under some authorities; there is debate whether either alternative is “essential,” so MBE questions often signal that the prior court clearly relied on a specific ground.

Exam Warning

Issue preclusion does not apply to issues decided in default judgments, because those issues were not actually litigated.

Worked Example 1.4

P sues D for negligence. D defaults, and judgment is entered for P. Later, P sues D again for negligence from the same accident. D now appears and contests negligence.

Answer:
Claim preclusion bars the second suit because the first judgment was on the merits. However, issue preclusion does not bar D from disputing negligence in some other unrelated context, because negligence was not actually litigated in the default case.

Issue Preclusion in Vicarious-Liability Settings

Where one party’s liability is purely derivative of another’s (e.g., employer–employee, principal–agent):

• A judgment in favor of the employee (finding no negligence) will often preclude a later suit against the employer based on the same alleged negligence; the employer is in privity with the employee for that purpose.
• Conversely, a judgment in favor of the employer may preclude a later suit against the employee in many jurisdictions.

Worked Example 1.5

P sues Driver (an employee) for negligence in State X court and loses after a trial on the merits; the court finds Driver was not negligent. P then sues Employer in State X, alleging vicarious liability for Driver’s negligence in the same accident.

Answer:
P’s suit against Employer is barred. Either claim preclusion (same accident, same primary right, and Employer is in privity with Driver) or issue preclusion (the issue of Driver’s negligence has already been actually litigated and decided) may apply, depending on the jurisdiction’s framing. On the MBE, you should recognize that P does not get a second chance against Employer on the same alleged negligence.

Summary of When Issue Preclusion Does NOT Apply

Issue preclusion does not apply if:

• The issue was not actually litigated (default, consent, or unpresented issue)
• The party to be bound lacked a full and fair opportunity to litigate
• The issue was not essential to the prior judgment
• Procedural differences in the first case made litigation of the issue significantly limited compared with the second case
• Applying offensive nonmutual issue preclusion would be unfair (e.g., inconsistent prior judgments, low stakes in the first case, or easy joinder was ignored)

GOVERNING LAW FOR PRECLUSION

Preclusion questions always involve at least two cases—case one (already reduced to judgment) and case two (currently pending). The key question is: Whose preclusion law applies in case two?

Key Term: Full Faith and Credit Act (28 U.S.C. § 1738)
A federal statute requiring federal courts to give state court judgments the same preclusive effect they would receive in the courts of the state that rendered the judgment.

When Case One Was in State Court

When the first judgment was issued by a state court:

• Any later court—state or federal—must apply the preclusion law of the rendering state.
• Federal courts do not create their own preclusion rules for state judgments; they must honor the state’s own rules, including its approach to mutuality and scope of claims.

This is where many MBE candidates mistakenly apply generic federal preclusion rules instead of the rendering state’s rules.

When Case One Was in Federal Court

When the first judgment was issued by a federal court:

• If case one was a federal question case:

  • Federal common law governs preclusion. Federal courts apply a uniform federal preclusion standard.

• If case one was a diversity case:

  • Under the Supreme Court’s Semtek approach, federal common law still governs, but it generally borrows the preclusion law of the state in which the federal court sat.
  • A dismissal “on the merits and with prejudice” in a diversity case usually precludes refiling in state court to the same extent a state-court dismissal would have.

Special Contexts: In Rem and Quasi In Rem Judgments

• In rem judgments (e.g., probate, condemnation, status of property) are binding as to the rights of all persons in the property when the rendering court had jurisdiction and proper notice was given.
• Quasi in rem judgments determine rights of specific parties in the property before the court; they normally do not produce personal judgments beyond that property, and their preclusive effect is limited to those property rights.

These rarely appear in MBE questions, but they illustrate that what the first court decided (personal rights vs. status of property) conditions preclusion in later cases.

Key Point Checklist

This article has covered the following key knowledge points:

• Claim preclusion (res judicata) requires:
  • A valid, final judgment on the merits
  • The same parties (or their privies)
  • The same claim, defined by the same transaction or occurrence
• Claim preclusion bars not only claims actually litigated, but also those that could have been raised in the first action and were within the court’s jurisdiction.
• Default and consent judgments are on the merits for claim preclusion but do not satisfy the “actually litigated” requirement for issue preclusion.
• Issue preclusion (collateral estoppel) requires:
  • The same issue
  • Actually litigated and determined
  • Essential to the prior judgment
  • A valid, final judgment
  • A party to be bound who had a full and fair opportunity to litigate
• Only parties or their privies can be bound by issue preclusion, but nonparties may sometimes use a prior judgment (nonmutual issue preclusion), especially defensively.
• Offensive nonmutual issue preclusion is permitted only when it is fair, considering the defendant’s opportunity and incentive to litigate and the risk of inconsistent judgments.
• In vicarious-liability settings, a judgment exonerating an employee often precludes a later suit against the employer based on the same alleged negligence.
• When a federal court is asked to give preclusive effect to a prior state court judgment, it must apply the preclusion law of the rendering state under the Full Faith and Credit Act.
• When the first judgment is federal, federal common law controls preclusion; in diversity cases, federal law usually incorporates the preclusion rules of the state where the federal court sits.

Key Terms and Concepts

• Claim Preclusion (Res Judicata)
• Issue Preclusion (Collateral Estoppel)
• Final Judgment on the Merits
• Merger and Bar
• Privity
• Same Transaction or Occurrence
• Essential to the Judgment
• Nonmutual Issue Preclusion
• Defensive Nonmutual Issue Preclusion
• Offensive Nonmutual Issue Preclusion
• Full Faith and Credit Act (28 U.S.C. § 1738)