USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 93-2021
OLGA GONZALEZ,
a/k/a OLGA GONZALEZ ABREU, ET AL.,
Plaintiffs, Appellants,
v.
BANCO CENTRAL CORP., ET AL.,
Defendants, Appellees.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Hector M. Laffitte, U.S. District Judge]
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Before
Selya, Circuit Judge,
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Bownes, Senior Circuit Judge,
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and Stahl, Circuit Judge.
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Fernando L. Gallardo, with whom Woods & Woods was on brief,
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for appellants.
Luis Sanchez Betances, with whom Ivonne Cruz Serrano, Luis
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A. Melendez-Albizu, and Sanchez-Betances & Sifre were on brief,
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for appellees.
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June 30, 1994
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SELYA, Circuit Judge. This appeal raises tantalizing
SELYA, Circuit Judge.
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questions concerning the application of the doctrine of res
judicata to nonparties. Because we conclude that appellants
cannot lawfully be precluded from bringing their action in the
circumstances at bar, we reverse the district court's order of
dismissal and remand for further proceedings.
I. BACKGROUND
I. BACKGROUND
In the 1970s, a consortium of real estate developers
sold subdivided lots of undeveloped land to approximately 3,000
purchasers, most of whom resided in Puerto Rico. Contrary to the
promoters' glowing representations, the real estate proved to be
Florida swampland, unsuitable for development.
In 1982, a gaggle of duped purchasers (whom we shall
call "the Rodriguez plaintiffs") commenced a civil action in the
United States District Court for the District of Puerto Rico.
They sued the sellers, the banks that financed the project,1 and
several related individuals. The Rodriguez plaintiffs alleged
violations of the Interstate Land Sales Full Disclosure Act
("ILSFDA"), 15 U.S.C. 1703, the Securities Exchange Act of
1934, 15 U.S.C. 78j, Rule 10b-5 thereunder, 17 C.F.R.
240.10b-5, and the Racketeering Influenced and Corrupt
Organizations Act ("RICO"), 18 U.S.C. 1961-1964. Some of the
plaintiffs then assisted in the formation of the Sunrise
Litigation Group. The group's members paid fees that helped
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1Most of the financing was undertaken by Banco Central y
Economias and Banco de Economias, the predecessors in interest of
defendant-appellee Banco Central Corp.
2
defray the costs of the litigation and exchanged information that
sometimes proved to be of use in pursuing the litigation.
After several years of discovery and numerous
amendments to the pleadings, the Rodriguez plaintiffs, 152
strong, sought to convert their suit to a class action. In April
of 1987, the district court refused either to certify a class or
to permit additional plaintiffs to intervene. Almost immediately
thereafter, several prospective plaintiffs who had tried in vain
to join the Rodriguez litigation initiated the instant action.
The new coalition of claimants (whom we shall call "the Gonzalez
plaintiffs") were represented by the same lawyers who represented
the Rodriguez plaintiffs. They sued the same defendants and
their complaint mimicked a proposed amended complaint on file
(but never allowed) in the Rodriguez litigation.
During the next few years, some of the Gonzalez
plaintiffs joined the Sunrise Litigation Group. In the same time
frame, they prevailed on no fewer than five motions to bring in
additional claimants. And on January 16, 1992, the district
court allowed the Gonzalez plaintiffs to amend their complaint to
include mail fraud as a RICO predicate act, see 18 U.S.C.
___
1962(d), and to include claims for breach of contract and fraud
under Puerto Rico law, see, e.g., P.R. Laws Ann. tit. 31, 3018.
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Despite strong evidence of skullduggery,2 the
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2Judge Fuste, who presided over the Rodriguez case, believed
the plaintiffs "undoubtedly" had been wronged. Even while
upholding many of the defendants' legal arguments, he lamented
the seeming injustice "in allowing the . . . sellers of swampland
to trusting buyers, to walk from this court without so much as a
3
Rodriguez plaintiffs frittered away much of their case through a
series of pretrial blunders. See, e.g., Rodriguez v. Banco
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Central Corp., 727 F. Supp. 759, 763-65 (D.P.R. 1989) (dismissing
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claims under ILSFDA as time-barred), aff'd in part and vacated in
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part, 917 F.2d 664 (1st Cir. 1990); id. at 769-70 (dismissing
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RICO claims premised on federal securities violations); Rodriguez
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v. Banco Central Corp., 777 F. Supp. 1043, 1047 (D.P.R. 1991)
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(discussing plaintiffs' failure to plead certain potentially
viable claims). The Rodriguez plaintiffs ultimately lost what
remained of their case after a seven-week jury trial when Judge
Fuste directed verdicts for the defendants on the only surviving
claims and this court upheld his ruling on appeal, see Rodriguez
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v. Banco Central Corp., 990 F.2d 7, 14 (1st Cir. 1993).
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Following the interment of the Rodriguez litigation,
renewed attention focused on the Gonzalez litigation (which was
pending before Judge Laffitte). By then, the Gonzalez plaintiffs
were pressing certain claims that replicated those pressed and
lost by the Rodriguez plaintiffs, e.g., claims under the ILSFDA,
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Rule 10b-5, and RICO (premised on securities fraud), and certain
additional claims that had been neglected or abandoned by the
Rodriguez plaintiffs, e.g., RICO claims premised on mail fraud,
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state-law claims for fraud, and claims for breach of contract.
After silhouetting the Gonzalez plaintiffs' suit
against the backdrop of the completed Rodriguez litigation, Judge
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scratch." Rodriguez v. Banco Central Corp., 777 F. Supp. 1043,
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1065 (D.P.R. 1991).
4
Laffitte, by way of an unpublished memorandum opinion, dismissed
the action in its entirety on grounds of res judicata. The
Gonzalez plaintiffs appeal. We have jurisdiction pursuant to 28
U.S.C. 1291.
II. ANALYSIS
II. ANALYSIS
Although appellants were not parties to the earlier
litigation, the court below applied res judicata in bar of their
claims under a theory of privity. The applicability vel non of
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the doctrine of res judicata presents a question of law over
which we exercise plenary appellate review. See E. & J. Gallo
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Winery v. Gallo Cattle Co., 967 F.2d 1280, 1287 (9th Cir. 1992).
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Federal law governs the res judicata effects of a federal court
judgment in a federal question case as applied to a later case
that again presents a federal question to a federal court. See
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Blonder-Tongue Labs., Inc. v. University of Ill. Found., 402 U.S.
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313, 324 n.12 (1971); Kale v. Combined Ins. Co., 924 F.2d 1161,
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1165 (1st Cir.), cert. denied, 112 S. Ct. 69 (1991); see also 18
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Charles A. Wright, et al., Federal Practice and Procedure 4466,
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at 617-18 (1981) (hereinafter "Wright & Miller"). Thus, because
both the earlier (ostensibly precluding) suit and the later
(ostensibly precluded) suit invoked federal question
jurisdiction, see 28 U.S.C. 1331, the rule of decision here is
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supplied by federal law.
The accepted formulation of res judicata for federal
court use teaches that "a final judgment on the merits of an
action precludes the parties or their privies from relitigating
5
issues that were or could have been raised in that action."
Allen v. McCurry, 449 U.S. 90, 94 (1980). Accordingly, the
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elements of res judicata are (1) a final judgment on the merits
in an earlier suit, (2) sufficient identicality between the
causes of action asserted in the earlier and later suits, and (3)
sufficient identicality between the parties in the two suits.
See Aunyx Corp. v. Canon U.S.A., Inc., 978 F.2d 3, 6 (1st Cir.
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1992), cert. denied, 113 S. Ct. 1416 (1993); Kale, 924 F.2d at
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1165.
In the present situation, the first element in this
tripartite test provokes no controversy; appellants concede that
the earlier (Rodriguez) suit resulted in final judgment on the
merits. Thus, we concentrate our energies on the remaining two
prongs of the test.
A. Identicality of Causes of Action.
A. Identicality of Causes of Action.
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To determine whether sufficient subject matter identity
exists between an earlier and a later suit, federal courts employ
a transactional approach. See Kale, 924 F.2d at 1166; Manego v.
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Orleans Bd. of Trade, 773 F.2d 1, 5 (1st Cir. 1985), cert.
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denied, 475 U.S. 1084 (1986); see also Restatement (Second) of
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Judgments 24 (1992). This approach recognizes that a valid and
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final judgment in an action will extinguish subsequent claims
"with respect to all or any part of the transaction, or series of
connected transactions, out of which the action arose." Manego,
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773 F.2d at 5 (quoting Restatement 24).
To understand the transactional approach, it is
6
necessary to appreciate that a single transaction or series of
transactions can and often does give rise to a multiplicity
of claims. Phrased another way, "[a] single cause of action can
manifest itself in an outpouring of different claims, based
variously on federal statutes, state statutes, and the common
law." Kale, 924 F.2d at 1166. The necessary identity will be
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found to exist if both sets of claims those asserted in the
earlier action and those asserted in the subsequent action
derive from a common nucleus of operative facts. See id. This
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principle pertains no matter how diverse or prolific the claims
themselves may be. See 1B J. Moore, Federal Practice 0.410[1]
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at 350 (2d ed. 1993) (explaining that "the `cause of action' or
`claim' . . . is bounded by the injury for which relief is
demanded, and not by the legal theory"). It follows that the
omission of a particular statement of claim from the original
suit is of no great consequence; if the transaction is the same
and the other components of the test are satisfied, principles of
res judicata will bar all claims that either were or could have
been asserted in the initial action. See Kale, 924 F.2d at 1166;
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Manego, 773 F.2d at 5. The key is to define the underlying
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injury.
This definitional process is not a purely mechanical
exercise. "What factual grouping constitutes a `transaction',
and what groupings constitute a `series', are [matters that
should] be determined pragmatically," taking into consideration a
wide variety of relevant factors, including but not limited to
7
such things 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 . . . ." Aunyx, 978 F.2d at 7 (quoting Restatement
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(Second) of Judgments 24).
Given these criteria, we believe that there is
sufficient identicality here between the earlier and later
actions to satisfy the requisite standard. Without exception,
appellants' claims stem from the same series of transactions as
the claims asserted in the initial litigation. Although the
individual sales contracts are different, all of them arise out
of a single course of conduct undertaken by a band of allied
defendants. By like token, while each purchaser acquired a
different lot at a different price, all the lots are part of the
same development and all were sold by means of the same ballyhoo.
At the very least, the two sets of claims are closely related in
time, origin, and geography.
Moreover, if merged, the two sets of claims would form
a well-integrated unit. The same kinds of land sale contracts
that the Rodriguez plaintiffs attacked under ILSFDA and sought to
characterize as "securities" for purposes of their RICO claim,
see Rodriguez, 990 F.2d at 9, underlie appellants' current
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claims. To be sure, appellants have negotiated the procedural
minefield more nimbly than their predecessors, and have,
therefore, assembled a more varied assortment of legal theories;
but their claims including both those that replicate the
8
Rodriguez plaintiffs' claims and those that do not implicate
the same series of interconnected transactions that gave rise to
the causes of action litigated in the earlier lawsuit. In short,
both sets of claims, though dressed in different legal garb, grow
out of a common nucleus of operative facts. No more is exigible.
B. Identicality of Parties.
B. Identicality of Parties.
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Concluding, as we do, that the district court's
analysis passes muster on the first two components of the
tripartite test, we turn to the third essential ingredient needed
to invoke the doctrine of res judicata: the presence of a
sufficient identity between the parties to the earlier and later
actions. Short of situations in which precisely the same parties
appear in both suits, this element is almost always difficult to
gauge.
1. Nonparty Preclusion. We step back to gain a sense
1. Nonparty Preclusion.
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of perspective. We are aware that a Supreme Court dictum can be
read to suggest that res judicata is inoperative as a matter of
law insofar as nonparties are concerned. See Montana v. United
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States, 440 U.S. 147, 154 (1979) ("Preclusion of . . . nonparties
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falls under the rubric of collateral estoppel rather than res
judicata because the latter doctrine presupposes identity between
causes of action. And the cause of action which a nonparty has
vicariously asserted differs by definition from that which he
subsequently seeks to litigate in his own right.") (dictum). We
believe it is highly improbable, however, that the Montana Court,
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whose primary interest lay in molding the contours of the related
9
doctrine of collateral estoppel,3 meant categorically to banish
privity a time-honored concept that collapses distinctions
between form and substance in respect to party status from use
in conjunction with principles of res judicata.
This conclusion is firmly supported not only by
respectable precedent but also by practical considerations.
Notwithstanding the Montana dictum, several courts, including
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this court, continue to apply res judicata to nonparties when the
circumstances warrant. See, e.g., Aunyx, 978 F.2d at 7-8
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(applying res judicata to preclude the alter ego of a corporation
from relitigating); In re Air Crash at Dallas/Fort Worth Airport,
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861 F.2d 814, 816-18 (5th Cir. 1988) (applying res judicata to
bar decedent's daughter from relitigating); see also Restatement
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(Second) of Judgments 40, 41 (endorsing application of claim
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preclusion to nonparties in specified circumstances). In the
same vein, courts continue routinely to formulate res judicata as
a doctrine that bars parties "or their privies" from relitigating
claims. See, e.g., Allen, 449 U.S. at 94; Kale, 924 F.2d at
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1165; In re Air Crash, 861 F.2d at 816; United States v. Athlone
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Indus., Inc., 746 F.2d 977, 983 (3d Cir. 1984); Lee v. City of
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Peoria, 685 F.2d 196, 199 (7th Cir. 1982).
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There are also strong practical considerations that
counsel against blind adherence to the Montana dictum. The
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3While the doctrines of res judicata and collateral estoppel
have been said to "share a distinct family resemblance," Fiumara
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v. Fireman's Fund Ins. Cos., 746 F.2d 87, 90 n.1 (1st Cir. 1984),
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they are nonetheless distinct, see Parklane Hosiery Co. v. Shore,
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439 U.S. 322, 326 n.5 (1979) (delineating differences).
10
doctrine of res judicata serves many desirable ends, among them
finality and efficiency. See Montana, 440 U.S. at 153. Logic
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suggests that the doctrine can achieve its goals only if its
preclusive effects occasionally can reach persons who,
technically, were not parties to the original action. The
pitfalls of a more mechanical rule are obvious; making party
status a sine qua non for the operation of res judicata opens the
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door to countless varieties of manipulation, including claim-
splitting, suits by proxy, and forum-shopping.
Finally, reading Montana's dictum as categorically
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eliminating res judicata whenever there are technically distinct
parties is at loggerheads with the hoary concept of privity a
concept long since integrated into the legal lexicon and
routinely applied in analogous situations. See, e.g., Stacy v.
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Thrasher, 47 U.S. 44, 51 (1848) (applying privity to determine
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the binding effect of court judgments); Wallingsford v. Larcon
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Co., 237 F.2d 904, 906 (8th Cir. 1956) (applying privity to
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determine the extent of the res judicata effect of a prior
judgment). We are loath to assume that the Court intended to
wrest this concept from the jurisprudence of res judicata by a
casual observation, bereft of any meaningful discussion or
explanation. As a rule, appellate courts do not operate in so
Delphic a fashion. See, e.g., United States v. Zapata, 18 F.3d
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971, 977 (1st Cir. 1994) (rejecting argument that "an unheralded
dictum" in a Supreme Court opinion altered settled Fourth
Amendment concepts and thereby "worked a sea change in the law").
11
We find this combination of precedent, policy, and
practicalities to be irresistible. Consequently, we hold that,
under federal law, res judicata can sometimes operate to bar the
maintenance of an action by persons who, technically, were not
parties to the initial action (to which preclusive effect is
attributed). Nonetheless, we appreciate that this is a murky
corner of the law and caution the district courts to tread
gingerly in applying res judicata to nonparties.4
2. Privity. The most familiar mechanism for extending
2. Privity.
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res judicata to nonparties without savaging important
constitutional rights is the concept of privity a concept that
furnishes a serviceable framework for an exception to the rule
that res judicata only bars relitigation of claims by persons who
were parties to the original litigation. See Meza v. General
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Battery Corp., 908 F.2d 1262, 1266 (5th Cir. 1990); see also NLRB
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v. Donna-Lee Sportswear Co., 836 F.2d 31, 34 (1st Cir. 1987)
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(applying same exception in connection with issue preclusion).
Although privity can be elusive, this case does not
require us to build four walls around it. Here, the res judicata
defense is based not on some exotic doctrinal refinement but on
commonly accepted principles of how privity operates to bring
about nonparty preclusion. The theory underlying defendants'
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4The perils of nonparty preclusion are real. Prominent
among them is the prospect that an overly expansive arrangement
of the concept, or too free use of it, may endanger
constitutional rights. See Meza v. General Battery Corp., 908
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F.2d 1262, 1266 (5th Cir. 1990) (approving concept but noting the
due process concerns implicit in the ideal that, in general,
every party is entitled to her own "day in court").
12
iteration of the defense is that privity exists (and, therefore,
nonparty preclusion potentially obtains) if a nonparty either
substantially controlled a party's involvement in the initial
litigation or, conversely, permitted a party to the initial
litigation to function as his de facto representative.5 We
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accept defendants' theoretical premise, but, after close
perscrutation of the record as a whole, we conclude that neither
stripe of privity exists here.
Substantial Control
Substantial Control
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The doctrine of res judicata rests upon the bedrock
principle that, for claim preclusion to apply, a litigant first
must have had a full and fair opportunity to litigate his claim.
See Fiumara v. Fireman's Fund Ins. Cos., 746 F.2d 87, 92 (1st
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Cir. 1984); see also 18 Wright & Miller, supra, 4449, at 417
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(noting "[o]ur deep-rooted historic tradition that everyone
should have his own day in court"); cf. Blonder-Tongue, 402 U.S.
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at 328 (commenting that it is sufficient to afford a litigant one
"full and fair opportunity for judicial resolution" of a
particular issue). If a nonparty either participated vicariously
in the original litigation by exercising control over a named
party or had the opportunity to exert such control, then the
nonparty effectively enjoyed his day in court, and it is
appropriate to impute to him the legal attributes of party status
for purposes of claim preclusion. See United States v. Bonilla
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5The sobriquet "virtual representation" frequently is used
to describe this type of de facto representation. It fits
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equally well under the label "representation by proxy."
13
Romero, 836 F.2d 39, 44 (1st Cir. 1987), cert. denied, 488 U.S.
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817 (1988); see also 18 Wright & Miller, supra, 4451, at 430
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(arguing that "[p]reclusion is fair so long as the relationship
between the nonparty and a party was such that the nonparty had
the same practical opportunity to control the course of the
proceedings that would be available to a party"); cf. Montana,
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440 U.S. at 154 (finding issue preclusion appropriate "when
nonparties assume control over litigation in which they have a
direct financial or proprietary interest and then seek to
redetermine issues previously resolved"); Restatement (Second) of
Judgments 39 (similar).6
Substantial control means what the phrase implies; it
connotes the availability of a significant degree of effective
control in the prosecution or defense of the case what one
might term, in the vernacular, the power whether exercised or
not to call the shots.7 See Rumford Chem. Works v. Hygienic
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Chem. Co., 215 U.S. 156, 160 (1909) (holding that the concept of
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6We do not think that comment b to section 39, Restatement
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(Second) of Judgments 39, comment b, at 383-84 (limiting scope
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of section to issue preclusion, not claim preclusion), indicates
that substantial control can never serve as the basis for a
finding of privity when res judicata is in play. Rather, we
interpret the comment as suggesting that substantial control has
somewhat different dimensions for purposes of issue preclusion
than for purposes of claim preclusion a proposition with which
we agree.
7Some courts and commentators have suggested that, at a
minimum, substantial control is the quantum of involvement
expected of a co-party. See, e.g., American Postal Workers
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Union, Etc. v. U.S. Postal Serv., 736 F.2d 317, 319 (6th Cir.
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1984); 1B Moore, supra, 0.411[6], at 456. With respect, we do
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not find this mode of measurement particularly enlightening and,
hence, we decline to install it.
14
substantial control refers to "the right to intermeddle in any
way in the conduct of the case"); Hy-Lo Unit & Metal Prods. Co.
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v. Remote Control Mfg. Co., 83 F.2d 345, 350 (9th Cir. 1936)
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(stating that substantial control means the "right to participate
and control such prosecution or defense"); Restatement (Second)
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of Judgments 39, comment c, at 384 (stating that control, for
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purposes of issue preclusion, refers to the right to exercise
"effective choice as to the legal theories and proofs to be
advanced," as well as "control over the opportunity to obtain
review"); see generally 1B Moore, supra, 0.411[6] at 456-58.
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As the proverb suggests, a picture is sometimes worth a
thousand words. Along these lines, we suspect that the concept
of substantial control can be illustrated better by examples than
by linguistic constructs. For instance, substantial control has
been found in the case of a liability insurer that assumes the
insured's defense, see, e.g., Iacaponi v. New Amsterdam Cas. Co.,
___ ____ ________ ______________________
379 F.2d 311, 312 (3d Cir. 1967), cert. denied, 389 U.S. 1054
_____ ______
(1968), an indemnitor who participates in defending an action
brought against the indemnitee, see, e.g., Bros, Inc. v. W. E.
___ ____ __________ _____
Grace Mfg. Co., 261 F.2d 428, 430-31 (5th Cir. 1958), and the
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owner of a close corporation who assumes control of litigation
brought against the firm, see, e.g., Kreager v. General Elec.
___ ____ _______ ______________
Co., 497 F.2d 468, 471-72 (2d Cir.), cert. denied, 419 U.S. 1041
___ _____ ______
(1974). Conversely, courts have refused to find substantial
control merely because a nonparty retained the attorney who
represented a party to the earlier action, see Freeman v. Lester
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15
Coggins Trucking, Inc., 771 F.2d 860, 864 (5th Cir. 1985); Ramey
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v. Rockefeller, 348 F. Supp. 780, 785 (E.D.N.Y. 1972), or because
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the nonparty assisted in financing the earlier action, see
___
Rumford Chem., 215 U.S. at 159-60; General Foods Corp. v.
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Massachusetts Dep't of Pub. Health, 648 F.2d 784, 787-88 (1st
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Cir. 1981), or because the nonparty testified as a witness in the
earlier action, see Benson & Ford, Inc. v. Wanda Petroleum Co.,
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833 F.2d 1172, 1174-75 (5th Cir. 1987); Ponderosa Devel. Corp. v.
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Bjordahl, 787 F.2d 533, 536-37 (10th Cir. 1986), or because the
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nonparty procured witnesses or evidence, see Carl Zeiss Stiftung
___ ___________________
v. V.E.B. Carl Zeiss, Jena, 293 F. Supp. 892, 921 (S.D.N.Y.
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1968), modified, 433 F.2d 686 (2d Cir. 1970), cert. denied, 403
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U.S. 905 (1971), or because the nonparty furnished his attorney's
assistance, see Cofax Corp. v. Minn. Mining & Mfg. Co., 79 F.
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Supp. 842, 844 (S.D.N.Y. 1947).
In the last analysis, there is no bright-line test for
gauging substantial control. The inquiry must be case-specific,
see 1B Moore, supra, 0.411[6] at 458, and fact patterns are
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almost endlessly variable. The critical judgment cannot be based
on isolated facts. Consequently, an inquiring court must
consider the totality of the circumstances to determine whether
they justify a reasonable inference of a nonparty's potential or
actual involvement as a decisionmaker in the earlier litigation.
The nonparty's participation may be overt or covert, and the
evidence of it may be direct or circumstantial so long as the
evidence as a whole shows that the nonparty possessed effective
16
control over a party's conduct of the earlier litigation as
measured from a practical, as opposed to a purely theoretical,
standpoint. The burden of persuasion ultimately rests with him
who asserts that control (or the right to exercise it) existed to
such a degree as would warrant invoking nonparty preclusion. See
___
id.
___
Applying this standard, there is no principled way in
which it can be said that the Gonzalez plaintiffs substantially
controlled the Rodriguez plaintiffs in regard to the original
litigation. The only facts to which the district court alluded
in ruling that nonparty preclusion loomed involve the similarity
of the complaints at one point in time, the parties' common legal
representation, and the planned use of some discovered materials
in both litigations. In our view, these facts do not begin to
show that the Gonzalez plaintiffs exercised any meaningful degree
of control over the course of the Rodriguez litigation. Nor did
they have either the right or the opportunity to demand such
control.8
Moreover, the record contains much additional evidence
indicating the absence of substantial control. No useful purpose
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8Admittedly, some plaintiffs in each camp also belonged to
an informal litigation group that helped to finance the Rodriguez
litigation and disseminated information relevant to members'
claims. Yet this link, whether taken by itself or in combination
with the circumstances noted by the district court, is far too
fragile to support a finding of substantial control. See, e.g.,
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Jenkins v. Hartford Acc. & Indem. Co., 733 F.2d 1090, 1091 (4th
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Cir. 1984) (holding that limited participation will not bind a
nonparty); General Foods, 648 F.2d at 788 (noting that merely
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helping to finance litigation will not bind a nonparty); McKeown
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v. Wheat, 231 F.2d 540, 543 (5th Cir. 1956) (similar).
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17
would be served by marshalling this evidence. We do, however,
remark the most telling datum: that the Rodriguez plaintiffs
sought to amend their complaint to add those who later became the
Gonzalez plaintiffs a full half-decade after the start of the
litigation a datum strongly suggesting that appellants had no
involvement in the initial five years of litigation. This lack
of participation at the early stages of the Rodriguez litigation
is particularly probative on the issue of substantial control,
for it was during this period that many pivotal strategic
decisions were made, resulting in the virtual forfeiture of some
especially promising causes of action (including the mail fraud
and state-law claims). Obviously, appellant had no chance to
share in this decisionmaking.
Virtual Representation
Virtual Representation
______________________
The defendants also attempt to sustain the application
of res judicata by employing principles of virtual representation
to demonstrate that privity exists. The attempt stalls.
Following defendants' itinerary would require us to imbue the
theory of virtual representation with a much greater cruising
range than either the law or the facts permit.
Although rooted in the eighteenth century law of
estates, virtual representation has only recently emerged as a
vehicle for general nonparty preclusion. See Robert G. Bone,
___
Rethinking the `Day in Court' Ideal and Nonparty Preclusion, 67
____________________________________________________________
N.Y.U. L. Rev. 193, 206-219 (1992). Its recent jurisprudential
history has been characterized by breadth of initial articulation
18
followed by abrupt retrenchment in actual application. These
pererrations, and the competing centrifugal and centripetal
forces that account for them, are most easily explained by
reference to the due process analyses that must guide any effort
to place the theory into practice. See, e.g., Meza, 908 F.2d at
___ ____ ____
1266.
The courts that first rode the warhorse of virtual
representation into battle on the res judicata front invested
their steed with near-magical properties. They suggested that
mere identity of interests between party and nonparty warranted
application of the theory and, hence, authorized nonparty
preclusion. See, e.g., Aerojet-General Corp. v. Askew, 511 F.2d
___ ____ _____________________ _____
710, 719 (5th Cir.) (holding that, under federal law, "a person
may be bound by a judgment even though not a party if one of the
parties to the suit is so closely aligned with his interests as
to be his virtual representative"), cert. denied, 423 U.S. 908
_____ ______
(1975). Despite such sweeping generalities, courts soon came to
realize that, though virtual representation was not the old gray
mare, neither should it be confused with Pegasus; finding virtual
representation based solely on identity of interests, and then
deploying the theory to justify nonparty preclusion in a broad
spectrum of cases, would threaten the core principles
underpinning the due process equation. See Martin v. Wilks, 490
___ ______ _____
U.S. 755, 761-62 (1989); Meza, 908 F.2d at 1266. For this
____
reason, contemporary caselaw has placed the theory of virtual
representation on a short tether, significantly restricting its
19
range. See Benson & Ford, 833 F.2d at 1175 (observing that the
___ _____________
theory of virtual representation must be kept within strict
confines); Pollard v. Cockrell, 578 F.2d 1002, 1008-09 (5th Cir.
_______ ________
1978) (explicitly limiting Aerojet holding); see generally 18
_______ ___ _________
Wright & Miller, supra, 4457 at 355 (Supp. 1994) (discussing
_____
"narrow role" that remains for virtual representation).
The upshot is that, today, while identity of interests
remains a necessary condition for triggering virtual
representation, it is not alone a sufficient condition. More is
required to bring the theory to bear.9 See General Foods, 648
___ ______________
F.2d at 789 (holding that "identity of interests" between a party
and a nonparty "does not bind [the nonparty] to the judgment");
Griffin v. Burns, 570 F.2d 1065, 1071 (1st Cir. 1978) (explaining
_______ _____
that "[m]ere similarity of interests and a quantum of
representation" is insufficient to trigger virtual
representation); Petit v. City of Chicago, 766 F. Supp. 607, 612
_____ _______________
(N.D. Ill. 1991) (holding that "identity of interests alone . . .
is not sufficient to yield a finding of privity"); see also
___ ____
Benson & Ford, 833 F.2d at 1174-76 (declining to find nonparty
______________
preclusion anent an antitrust claim growing out of the same facts
where the nonparty plaintiff testified at the earlier trial and
had the same attorney); see generally 18 Wright & Miller, supra,
___ _________ _____
____________________
9This remains the modern rule despite an occasional dictum
that a determined advocate might read to the contrary. See,
___
e.g., In re Medomak Canning Co., 922 F.2d 895, 901 (1st Cir.
____ __________________________
1990) (suggesting that "privity may be established by
identification of interests, even where representation of those
interests is not authorized").
20
4457, at 500.
To say that a litigant advocating virtual
representation, and seeking thereby to preclude a nonparty's
suit, must show more than an identity of interests is to state
the nature of the problem, not to solve it. Many of the ensuing
questions questions like "how much more?" and "what comprises
`more'?" seem to have no categorical answers. Not
surprisingly, then, the cases in which courts have dealt with the
doctrine, taken as an array, are resistant to doctrinal
rationalization in the form of a single elegant limiting
principle of the "one size fits all" variety. There is no black-
letter rule. See Colby v. J.C. Penney Co., 811 F.2d 1119, 1125
___ _____ _______________
(7th Cir. 1987) (commenting that "no uniform pattern has emerged
from the cases"); Ethnic Employees of Library of Congress v.
_________________________________________
Boorstin, 751 F.2d 1405, 1411 n.8 (D.C. Cir. 1985) (noting that
________
the virtual representation doctrine has a "highly uncertain
scope"); see also Bone, supra, 67 N.Y.U. L. Rev. at 220
___ ____ _____
(acknowledging absence of clear organizing framework). In the
end, virtual representation is best understood as an equitable
theory rather than as a crisp rule with sharp corners and clear
factual predicates, see 18 Wright & Miller, supra, 4457 at 502,
___ _____
such that a party's status as a virtual representative of a
nonparty must be determined on a case-by-case basis, see Bonilla
___ _______
Romero, 836 F.2d at 43.
______
Although the need for individualized analysis persists,
a common thread binds these variegated cases together: virtual
21
representation has a pronounced equitable dimension. Thus,
notwithstanding identity of interests, virtual representation
will not serve to bar a nonparty's claim unless the nonparty has
had actual or constructive notice of the earlier litigation,10
and the balance of the relevant equities tips in favor of
preclusion. For example, courts have applied the doctrine in
situations in which a nonparty has given actual or implied
consent to be bound by the results in a prior action, see, e.g.,
___ ____
Boyd v. Jamaica Plain Co-op Bank, 386 N.E.2d 775, 778-81 (Mass.
____ _________________________
App. Ct. 1979); see also Benson & Ford, 833 F.2d at 1176 (finding
___ ____ _____________
"tacit agreement[s]" to be bound characteristic of cases applying
virtual representation), or in which there has been "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," Pollard, 578 F.2d at 1008; see also In re
_______ ___ ____ _____
Medomak Canning Co., 922 F.2d 895, 900-01 (1st Cir. 1990)
_____________________
(holding that creditors were represented by the trustee in
bankruptcy, who had a fiduciary relationship to them), or in
which certain types of familial relationships link parties and
nonparties, see, e.g., Eubanks v. FDIC, 977 F.2d 166, 170 (5th
___ ____ _______ ____
Cir. 1992) (holding wife bound by outcome of bankrupt husband's
prior action); Stone v. Williams, 970 F.2d 1043, 1058-61 (2d Cir.
_____ ________
____________________
10Notice is a very important factor. With the possible
exception of Aerojet, 511 F.2d 710 (a case that has since been
_______
narrowed by the Fifth Circuit), counsel have cited us to no case
in which a court has precluded a nonparty, based on a theory of
virtual representation, where the nonparty had not received
timely notice (actual or constructive) of the initial litigation.
22
1992) (binding decedent's son to a prior ruling concerning
legacies), cert. denied, 113 S. Ct. 2331, or in which courts have
_____ ______
detected tactical maneuvering designed unfairly to exploit
technical nonparty status in order to obtain multiple bites of
the litigatory apple, see, e.g., Petit, 766 F. Supp. at 611-13;
___ ____ _____
Crane v. Comm'r of Dep't of Agric., 602 F. Supp. 280, 286-88 (D.
_____ __________________________
Me. 1985); see also 18 Wright & Miller, supra, 4457, at 498-99;
___ ____ _____
Bone, supra, at 222. Implicit in all these scenarios is the
_____
existence of actual or constructive notice.11
We have considered, and rejected, another possible
common characteristic. Some courts have suggested that adequacy
of representation is also a condition precedent to nonparty
preclusion grounded upon virtual representation. See, e.g.,
___ ____
Clark v. Amoco Prods. Co., 794 F.2d 967, 973-74 (5th Cir. 1986)
_____ ________________
(suggesting that virtual representation "closely resembles the
common law theory of concurrent privity . . . which in turn is
really only [an] adequate representation of interests analysis");
Delta Air Lines, Inc. v. McCoy Restaurants, Inc., 708 F.2d 582,
_____________________ _______________________
587 (11th Cir. 1983) (finding no virtual representation because
nonparty was not "adequately represented"); cf. 18 Wright &
___
Miller, supra, 4457, at 355-58 (1994 Supp.) (suggesting
_____
somewhat cryptically that "adequate litigation" should "remain[]
____________________
11To be sure, the Restatement does not require actual notice
when nonparty preclusion stems from a preexistent relationship
between party and nonparty. See Restatement (Second) of
___
Judgments 41, at 393. We suggest that the requirement is
omitted in such a situation because the formation of the
underlying relationship, in and of itself, embodies what amounts
to constructive notice of all ensuing litigation.
23
the central requirement" for nonparty preclusion based on
principles of virtual representation). Properly viewed, however,
adequacy of representation is not itself a separate and
inflexible requirement for engaging principles of virtual
representation,12 although it is one of the factors that an
inquiring court should weigh in attempting to balance the
equities.13
Based on these benchmarks, the Gonzalez plaintiffs
cannot plausibly be said to have been virtually represented by
the Rodriguez plaintiffs notwithstanding the identity of
interests between the two groups. Here, the equities counsel
very strongly against deploying the theory of virtual
representation. In the first place, there has been no showing
that the Gonzalez plaintiffs had timely notice of the first
____________________
12A contrary view would fly in the teeth of the general rule
that, in civil litigation, the sins of the lawyer routinely are
visited upon the client. See, e.g., Link v. Wabash R.R., 370
___ ____ ____ ___________
U.S. 626, 633-36 (1961); Thibeault v. Square D Co., 960 F.2d 239,
_________ ____________
242 (1st Cir. 1992). We do not understand why a nonparty who
comes within the doctrinal framework for virtual representation
a framework in which party and nonparty share identical
interests, and that provides for notice and a weighing of
equitable considerations should be treated differently from a
party in this regard.
13We are confident that the cases discussing the importance
of adequate representation can be reconciled with this analysis.
For instance, in McCoy, the prior action was voluntarily
_____ ___________
dismissed, not determined on the merits as res judicata requires.
_________
See McCoy Restaurants, 708 F.2d at 587. And in Clark, the court
___ _________________ _____
pointed out that the nonparties whose suit defendant sought to
preclude did not have fair notice of the prior litigation. See
___
Clark, 794 F.2d at 973-74.
_____
24
suit.14 In the second place, the parties' independence the
inescapable fact that the Rodriguez plaintiffs were not legally
responsible for, or in any other way accountable to, the Gonzalez
plaintiffs weighs heavily against a finding of virtual
representation.15 See Benson & Ford, 833 F.2d at 1176. In the
___ ______________
third place, the lack of a special type of close relationship
between the two groups of plaintiffs (who are, for the most part,
unrelated lambs purportedly fleeced by the same cadre of
unscrupulous sheepherders) also weighs against a finding of
virtual representation. See Eubanks, 977 F.2d at 170. Fourth,
___ _______
the fact that the Gonzalez plaintiffs never consented, either
explicitly or constructively, to be bound by the verdict in the
earlier action is significant, see Benson & Ford, 833 F.2d at
___ _____________
1176, especially since they actually initiated the later action
while the earlier action was still pending. And, finally, far
from engaging in tactical maneuvering aimed at gaining unfair
advantage, appellants sought to join the Rodriguez action and
were thwarted in the effort because the defendants objected and
the district court, siding with the defendants, barred
____________________
14The first explicit reference to any of the Gonzalez
plaintiffs in the papers of the Rodriguez case occurred on April
10, 1987, when the Rodriguez plaintiffs sought leave to add them
as parties. The district court denied this motion on April 27,
1987. See supra p.3. There is nothing to indicate that, prior
___ _____
thereto, any of the Gonzalez plaintiffs either knew about the
pendency of the Rodriguez action or had retained the Rodriguez
plaintiffs' lawyers as their counsel.
15In this connection, it must be emphasized that the
district court, in the person of Judge Fuste, refused to certify
the Rodriguez case as a class action.
25
appellants' path.
Of course, given the discretionary character of virtual
representation, see 18 Wright & Miller, supra, 4457 at 502, we
___ _____
would not conclude that a case falls outside the theory's purview
solely because it does not fit snugly into some preconceived
niche or mirror some established fact pattern. But, here, the
sequence of events itself confirms the inappropriateness of
bringing virtual representation to the fore in this case. The
district court, after refusing to certify a class, prohibited
appellants from joining the original suit, yet thereafter
precluded them from prosecuting their own action.16 This
whipsawing placed appellants in an untenable position. Short of
a class action, with all the concomitant safeguards that class
certification portends, see, e.g., Fed. R. Civ. P. 23, we do not
___ ____
think that the Due Process Clause comfortably can accommodate
such a paradigm. In any event, on the facts of this case the
prospect of depriving these plaintiffs of their day in court
offends our collective sense of justice and fair play.
Consequently, we hold that the theory of virtual representation
cannot be galvanized to preclude appellants from maintaining
their suit.
III. CONCLUSION
III. CONCLUSION
We need go no further. Because the appellants were
neither parties to the initial action nor in privity with the
____________________
16Though two different judges made these rulings, that fact
is not of legal consequence. We might add parenthetically that
it is also cold consolation to appellants.
26
plaintiffs therein, the district court erred in dismissing their
suit under principles of res judicata.
Reversed and remanded for further proceedings. Costs to
Reversed and remanded for further proceedings. Costs to
___________________________________________________ _________
appellants.
appellants.
__________
27
