OPINION BY JUSTICE D. ARTHUR KELSEY.
This case involves only one underlying dispute: The Funny Guy, LLC contends that it was not paid for work it did for Lecego, LLC.
After that theory proved unsuccessful, Funny Guy filed a second suit claiming that the initial promise to pay constituted a binding contract (the oral-contract theory) and argued alternatively that Lecego should pay anyway even if no binding contract existed (the quantum-meruit theory). The trial court dismissed the second suit because these two
In 2014, Funny Guy sued Lecego and claimed that, from 2012 to 2013, Funny Guy had "provided certain information technology and related services" pursuant to a contract with Lecego. J.A. at 312.
Less than a year later, Funny Guy again sued Lecego asserting two alternative theories of recovery, breach of contract and quantum meruit. This second complaint, like the first, alleged that Funny Guy had performed work for Lecego but was never paid for it. Compare id. at 6, with id. at 312, 314. Seeking $75,790,
The trial court correctly reasoned that Rule 1:6 prohibited Funny Guy from filing two separate lawsuits when one would have been perfectly sufficient. Drafted to have a pragmatically broad reach, Rule 1:6 revived the historic principles of res judicata and applied them to modern litigation. See infra Part II.B. Both the text and historical context of Rule 1:6 calibrate its scope to Virginia's statutes governing pleading and joinder of claims. Because Funny Guy could have joined all three of its claims in a single suit and no disqualifying principle of res judicata applies, Rule 1:6 prohibited Funny Guy from filing a second suit after losing its first suit on the merits.
Funny Guy's argument to the contrary treats this case as two wholly separate disputes: Lecego's initial promise to pay, on one hand, and Lecego's promise to pay what it had earlier promised to pay, on the other. We find this distinction artificial and overly formalistic. This analysis comes uncomfortably close to reconstituting the "same evidence" test applied in Davis v. Marshall Homes, Inc., 265 Va. 159, 166-68, 171, 576 S.E.2d 504, 507-08, 510 (2003), that Rule 1:6 expressly rejected. For purposes of res judicata, the task of categorizing the cluster of facts that define a dispute is a pragmatic exercise that focuses on how the parties, not legal dictionaries, would view the conflict. From this perspective, there is no reason to subject the parties — and the judicial system — to two separate lawsuits to resolve one underlying dispute.
The exact origins of res judicata cannot be found in any "statute or rule of the common law." Martin P. Burks, Common Law and Statutory Pleading and Practice § 357, at 672 (T. Munford Boyd ed., 4th ed. 1952).
Res judicata involves both issue and claim preclusion. See generally Lee v. Spoden, 290 Va. 235, 245-46, 776 S.E.2d 798, 803-04 (2015). Issue preclusion bars relitigation of common factual issues between the same or related parties. "Under the concept of collateral estoppel, `the parties to the first action and their privies are precluded from litigating [in a subsequent suit] any issue of fact actually litigated and essential to a valid and final personal judgment in the first action.'" Rawlings v. Lopez, 267 Va. 4, 4-5, 591 S.E.2d 691, 692 (2004) (alteration in original) (citation omitted). Claim preclusion, on the other hand,
Kent Sinclair & Leigh B. Middleditch, Jr., Virginia Civil Procedure § 14.11[B][5], at 1214 (6th ed. 2014) (emphasis in original).
For all of the legal argot making the doctrine sound tiresomely erudite, the thought is really no more complicated than saying that, as Henry Black put it, litigants must "make the most of their day in court." 2 Black, supra note 5, § 731, at 1096. With equal clarity, it could also be said: "The law should afford one full, fair hearing relating to a particular problem — but not two." Kent Sinclair, Guide to Virginia Law & Equity Reform and Other Landmark Changes § 11.01, at 246 (2006).
Claim preclusion has always been the stepchild of pleading and joinder rules. "Determining which claims should have been brought in earlier litigation largely depends on which claims could have been brought." Id. § 11.2, at 247 (emphases in original); see also 2 Black, supra note 5, § 618, at 944-45. "Early American res judicata doctrine evolved in the shadow of these pleading rules
"At common law, joinder of tort and contract claims was forbidden." Sinclair & Middleditch, supra, § 8.6[B], at 706-07. Similar nonjoinder rules arose from the separation of law and equity.
Sinclair, supra, § 11.2, at 248-49.
Over time, courts developed analytical shortcuts to decide the easy cases. One of the most popular was the "same evidence" formulation. See Restatement of Judgments § 61, at 240 (1942) (stating that "the plaintiff is precluded from subsequently maintaining a second action based upon the same transaction, if the evidence needed to sustain the second action would have sustained the first action"). The first Restatement of Judgments applied this test to determine what constituted a single transaction for purposes of res judicata. However, "[a]lthough the `same evidence' standard was `[one] of the tests' used at the time, it was not the only one." Nevada v. United States, 463 U.S. 110, 130 n.12, 103 S.Ct. 2906, 77 L.Ed.2d 509 (1983) (second alteration in original) (quoting The Haytian
This shortcut made clear when res judicata doubtlessly applied to preclude the second suit but said nothing about when it did not apply. In this way, the same evidence formulation was "a test for inclusion" rather than as a "test for exclusion." Casad & Clermont, supra note 5, at 66. Though the point was lost on some courts, the first Restatement explicitly stated:
Restatement of Judgments § 61 cmt. a, at 240 (emphasis added).
Casad & Clermont, supra note 5, at 66 (footnotes omitted).
"Definitions of what constitutes the `same cause of action' have not remained static over time," Nevada, 463 U.S. at 130, 103 S.Ct. 2906, and thus, res judicata had to expand to parallel modern pleading and joinder reforms.
Id. § 24(2); see also Sinclair & Middleditch, supra, § 14.11[B][5], at 1220, 1222. Because the transactional approach is consistent with the reasoning underlying early res judicata doctrine, it represents a refinement of, and not a departure from, traditional res judicata principles.
Virginia law has historically recognized that a litigant must unite every joinable claim that he has against a particular defendant in one proceeding or risk the preclusion of his other claims. "Every litigant should have opportunity to present whatever grievance he may have to a court of competent jurisdiction; but having enjoyed that opportunity and having failed to avail himself of it, he must accept the consequences." Miller v. Smith, 109 Va. 651, 655, 64 S.E. 956, 957 (1909). Thus, the "effect of a final decree is not only to conclude the parties as to every
Early Virginia cases applying the merger-bar principles of res judicata focused on the subject matter of the underlying dispute — not the particular legal theories asserted, alternatively pled claims, tightly defined fact patterns, or formalistic distinctions between related rights of action. See, e.g., Martin v. Columbian Paper Co., 101 Va. 699, 701, 44 S.E. 918, 918-19 (1903) (noting that the two suits "involve the same subject-matter, and have a common object"); Howison v. Weeden, 77 Va. 704, 707 (1883) ("[I]f ... the same subject matter has been once fully passed upon, and the sentence of this court pronounced between the same parties or their privies, then it is res judicata...."). The problem with res judicata at that time was not scope limitations on the should-have-litigated aspect of the doctrine, but procedural limitations on the could-have-litigated aspect.
As stated previously, a common-law plaintiff could not join tort and contract claims in the same suit. See Kavanaugh v. Donovan, 186 Va. 85, 93, 41 S.E.2d 489, 493 (1947); Gary v. Abingdon Publ'g Co., 94 Va. 775, 779, 27 S.E. 595, 596 (1897). In Virginia, that procedural limitation disappeared with the enactment of Code §§ 8.01-272 and 8.01-281, which allow plaintiffs to join tort and contract claims and to plead alternative theories of recovery. See Powers v. Cherin, 249 Va. 33, 37, 452 S.E.2d 666, 668 (1995). Both statutes employ the "same transaction or occurrence" test to define which claims a plaintiff may join. Code §§ 8.01-272, -281; see Fox v. Deese, 234 Va. 412, 422-23, 362 S.E.2d 699, 705 (1987).
Commentators argued that Davis "redefined the doctrine of res judicata," John R. Walk, Annual Survey of Virginia Law: Civil Practice and Procedure, 39 U. Rich. L. Rev. 87, 91 (2004), causing it to become a "source of confusion" among experienced litigators and trial judges, Sinclair & Middleditch, supra, § 14.11[B][5], at 1216. Res judicata had become "`unglued' in Virginia," Professor Costello stated, because "the rule was turned backwards and became detrimental to the basic policy of res judicata, rather than supportive of it." John L. Costello, Virginia Remedies § 7.11[1], at 7-40 (4th ed. 2011). One court presciently described Davis as a "temporary aberration" in Virginia res judicata law. Caperton v. A.T. Massey Coal Co., 223 W.Va. 624, 679 S.E.2d 223, 262 n.45 (2008), rev'd on other grounds, 556 U.S. 868, 890, 129 S.Ct. 2252, 173 L.Ed.2d 1208 (2009). Though harsh, such criticisms were not unfair, as scholars have for some time lamented the "frequent misadventures in attempting to transport `cause of action' thinking from one procedural context to another" until courts began to recognize "that procedural reform ha[d] transformed the scope of claim preclusion." 18 Wright et al., supra note 8, § 4407, at 179.
The conceptual flaw in Davis was the use of the same-evidence test as a rule of exclusion. That test asked whether "the evidence needed to sustain the second action would have sustained the first action." Restatement of Judgments § 61 cmt. a, at 240. However, though res judicata barred a second claim requiring consideration of the same evidence as the first claim, "the negative is not true. Although the evidence needed to sustain the second action would not have sustained the first action, the plaintiff may be precluded by the judgment in the first action from maintaining the second action." Id. Thus, the same-evidence formulation worked only as "a test for inclusion" rather than as a "test for exclusion." Casad & Clermont, supra note 5, at 66; see also Costello, supra, § 7.11[1], at 7-40.
In 2004, the Boyd-Graves Conference
Rule 1:6(A).
The Court adopted Rule 1:6 in 2006. Under Rule 1:6, it does not matter that the second suit includes alternative legal theories or would require evidence not present in the first suit. Instead, Rule 1:6 parallels the "same transaction or occurrence" scope of Code §§ 8.01-272 and 8.01-281. Thus, if the underlying dispute produces different legal claims that can be joined in a single suit under the joinder statutes, Rule 1:6 provides that they should be joined unless a judicially-recognized exception to res judicata exists.
Applying these principles, the trial court held that the litigation between these parties arose out of a single underlying dispute: Funny Guy wants to be paid for work it did for Lecego. The trial court declined to view this contest — Lecego's initial promise to pay and its later promise to pay what it had earlier promised to pay — as two wholly separate litigable disputes. We agree. The symmetry between Rule 1:6 and the joinder statutes, coupled with the absence of any disqualifying principle of traditional res judicata law, demonstrates the correctness of the trial court's conclusion.
Code § 8.01-272 specifically addresses the joinder of claims in a single lawsuit. Under this statute, a plaintiff may join multiple claims in the same proceeding (including those, like tort and contract claims, which he previously could not join) so long as they "arise out of the same transaction or occurrence." Code § 8.01-272.
Code § 8.01-281(A) reinforces the broad scope of joinder in Virginia: "A party ... may plead alternative facts and theories of recovery ... provided that such claims ... arise of out of the same transaction or occurrence." Subsection B acknowledges the trial court's discretion to conduct separate evidentiary hearings if doing so is more prudent or efficient. See Code § 8.01-281(B); see also infra. The authority to sever recognizes that, particularly with alternative claims, resolving one claim might moot all the others. Equally so, the different evidentiary requirements of each claim that could potentially prejudice a party regarding another claim could provide a sound basis for a trial court to exercise its authority to sever the claims under Code § 8.01-281(B).
Code §§ 8.01-272 and 8.01-281, along with Rule 1:4(k), permit joinder of claims on the precondition that they arise out of the "same transaction or occurrence" — the exact phrase used in Rule 1:6(A) to define the scope of res judicata (but for the addition of the word
We applied the "transaction or occurrence" standard in Fox v. Deese, 234 Va. 412, 422-23, 362 S.E.2d 699, 705 (1987). Fox adopted a "broad restatement" of this standard by linking multiple parties involved in "different jobs and functions with different employers, alleged to have been culpable on multiple overlapping but not congruent theories, some individually, some on respondeat superior grounds, and some on both." Sinclair, supra, § 2.02(B), at 76. While "[s]ome were charged with negligence, others [were charged] with fraud, intentional wrongs, or conspiracy, in transactions spanning several months of activity in different offices, over the telephone, in person, and through correspondence." Id. Even with this wide range of factual circumstances, Fox held that a "fair reading" of the complaint showed that the plaintiff "pleaded alternative theories of recovery against the same group of defendants and that the claims arise out of the same transaction or occurrence." Fox, 234 Va. at 423, 362 S.E.2d at 705 (emphases added). In doing so, Fox recognized that all of the varied circumstances orbited around one core dispute.
The claims in Fox involved a large cluster of facts, far more complex and expansive than this relatively simple payment dispute between Funny Guy and Lecego. Funny Guy does not attempt to say otherwise.
A trial court has authority to sever joinable claims and order separate evidentiary hearings in the same case. See infra. That power to sever, however, presupposes the claims are joinable, and the claims are joinable only if they arise out of the same transaction or occurrence. The power to sever under Code § 8.01-281(B), therefore, does not support the assumption that the phrase "same transaction or occurrence" in the joinder statutes and Rule is somehow different from
For purposes of res judicata, deciding what constitutes a single transaction or occurrence under Rule 1:6 should be a practical analysis. The proper approach asks "whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage." Restatement (Second) of Judgments § 24(2). No "single factor" is indispensable or determinative. See id. § 24 cmt. b. The factors should instead be considered "pragmatically" with a view toward uncovering the true underlying dispute between the parties. Id. § 24(2). Under this approach, it does not matter that the claimant "is prepared in the second action (1) [t]o present evidence or grounds or theories of the case not presented in the first action, or (2) [t]o seek remedies or forms of relief not demanded in the first action." Id. § 25.
Every one of these pragmatic factors supports the trial court's application of res judicata in this case. The "origin" and "motivation," id. § 24(2), for the claims are perfectly obvious: Funny Guy wants to get paid for its work. Evaluating the "time" and "space" factors, id. reveals a single payment dispute — concerning the same money for the same work — that was ongoing and uninterrupted. The three alternative theories of recovery that Funny Guy has asserted throughout this litigation (settlement, oral contract, and quantum meruit) all fit within a single factual narrative that easily forms "a convenient trial unit." Id. And the last factor, the "parties' expectations or business understanding or usage," id. is the most obvious. Reasonable commercial parties would not expect, much less want, a mere payment dispute to disintegrate into multiple lawsuits.
Other aspects of Funny Guy's reasoning fail to persuade us. Consider the correct observation that the putative settlement agreement (which the trial court held never existed) involved a slightly different amount than the alleged (but never adjudicated) oral-contract claim. The 3% difference between the two ad damnum clauses — $75,790 vs. $73,290 — apparently suggests to Funny Guy that there really were two underlying disputes, but this is not so. The difference did not reflect a dispute over how much was owed. Instead, Funny Guy and its principal offered the lesser amount "as a showing of good faith" during negotiations over the alleged settlement agreement. J.A. at 368. The only dispute between Funny Guy and Lecego was, and is, Funny Guy wanting to get paid for its work. The trifling difference between these two figures has little relevance to the res judicata analysis.
Nor does it matter, as Funny Guy contends, that the nonexistent settlement agreement included a few provisions arguably unrelated to the specific money Funny Guy claimed it was owed. These provisions merely required the parties to refrain from disparaging one another,
More importantly, none of these non-monetary provisions changed the essential character of the purported settlement agreement. As its provisions confirm:
Id. at 345 (emphases added).
Id. at 330 (emphases added); see also id. at 342 (incorporating "Exhibit 1" by reference).
Seeking compensation for the "work performed" under the prior oral agreement, id. at 345, Funny Guy had "billed a total of $374,967.40, of which $299,177.40 [had] been paid." Id. at 342. The reference to "final payment," id. at 330, represents the final payment (discounted by $2,500 "as a showing of good faith," id. at 368, during negotiations) that Funny Guy claimed it was owed for services performed under the prior oral contract. The claim barred by res judicata — and the only issue before us on appeal — is the claim for money for services already rendered, not some later ancillary dispute over Funny Guy's alleged disparagement of Lecego in the marketplace.
For these reasons, neither the difference in the ad damnum clauses nor the non-monetary provisions in the alleged settlement agreement reveal two separate transactions or occurrences for purposes of res judicata.
We acknowledge and respect the views of our dissenting colleagues. We cannot, however, agree with them on several key points.
To begin, the dissent reads the settlement agreement (which, once again, the circuit court held never legally existed) to bar "an administrative claim [that Funny Guy] submitted to the Department of Homeland Security (`DHS') contracting officer under the Prompt Payment Act, 31 U.S.C. §§ 3901-3907 (2012) and other federal law." Post at 27 n.1. This DHS claim implicated, the dissent suggests, "possible consequences" under "section 1334 of the Small Business Jobs Act of 2010, codified at 15 U.S.C. § 637(d)(13)(C)." Post at ___ n.1, 795 S.E.2d at 901-02 n.1. From there, the dissent concludes that these concerns "undoubtedly were worth more" than the $75,790 that Funny Guy claimed it was owed — thus demonstrating the "difference in consideration" between the oral contract and the purported settlement agreement. Post at ___ n.1, 795 S.E.2d at 901-02 n.1.
Our problem with the dissent's argument is that Funny Guy, the appellant, has never once asserted it. We find no mention of the DHS administrative claim, the Prompt Payment Act, or the Small Business Jobs Act in any of Funny Guy's motions, briefs, or oral argument in the circuit court. Nor did the court address this contention, much less rule upon it. On appeal, Funny Guy filed a petition for appeal and two briefs on the merits, and participated in oral argument before us. Even so, not once did Funny Guy make the specific argument that the dissent finds so persuasive.
We respectfully decline to address the merits or demerits of the dissent's assertion. We limit our analysis and holding to the arguments asserted by Funny Guy on appeal. See, e.g., Nolte v. MT Tech. Enters., LLC, 284 Va. 80, 94 n.3, 726 S.E.2d 339, 347 n.3 (2012). Absent a showing of extraordinary circumstances, we will only overturn a decision of a circuit court based on arguments the appellant asserted in the lower court and reasserted on appeal, see Rule 5:25; see, e.g., Nolte, 284 Va. at 94 n.3, 726 S.E.2d at 347 n.3, neither of which occurred here.
Finally, as for the consequences of our holding, the dissent declares: "Every time parties settle and one of them breaches the settlement agreement, the other party will have to prepare not only to litigate that breach but also the underlying claim, with all of its evidentiary burdens and litigation expenses." Post at ___, 795 S.E.2d at 903 (emphases added). For two reasons, we believe that this prediction overstates the effect of Rule 1:6.
First, Funny Guy asserted three cascading, alternative theories of recovery, the purported settlement claim being just one of them. All of them sought to recover the same money — unpaid compensation that Lecego twice allegedly promised to pay to Funny Guy. Our holding, as our reasoning underscores, focuses on this unique factual context. Not every settlement of every conceivable underlying claim (such as common-law tort claims, statutory rights of action, or constitutional claims) will involve such direct commonality. We are addressing only the case before us. Though said many times, it bears repeating that "all statements of law are to be read in connection with the facts of the case to which they are to be applied." Ellerson Floral Co. v. Chesapeake & Ohio Ry., 149 Va. 809, 812, 141 S.E. 834, 835 (1928).
Second, even in cases where (as here) the underlying contract and settlement claims share the requisite commonality, the only time a party suing on the settlement agreement would need to assert the underlying contract claim as an alternative theory is where (as here) the defendant disputes the very existence of the settlement agreement. If the parties accept the settlement agreement as a legally enforceable meeting of the minds, but merely dicker among themselves over whether it was breached, there would be no reason to assert an alternative claim that presupposed the settlement agreement did not legally exist because neither party would be making that assertion.
In sum, Rule 1:6 was meant to echo and implement the joinder principles of Code §§ 8.01-272 and 8.01-281, and their companion, Rule 1:4(k). If alternative claims qualify for joinder under the "same transaction or occurrence" standard in these joinder statutes and this Rule, they likewise constitute res judicata under the same standard in Rule 1:6 unless a disqualifying principle of res judicata applies. This symmetry secures res judicata to its historic moorings and prohibits litigants from gaming the litigation system with multiple lawsuits involving the same underlying dispute. Because the trial court correctly applied Rule 1:6, we affirm.
Affirmed.
The majority holds that Funny Guy's claims for breach of the putative settlement agreement and breach of the oral agreement for services arose from the same conduct, transaction, or occurrence for the purposes of Rule 1:6. My disagreement with the majority can be reduced to one issue: the majority's position is that there is only one dispute here, involving Funny Guy's expectation to be paid for the work that it did under the oral agreement, so it can arise from only one conduct, transaction, or occurrence. I agree with Funny Guy that it has alleged two wholly separate, though sequential, disputes, and they arise from different conduct, transactions, or occurrences. I therefore respectfully dissent.
Res judicata under Rule 1:6(a) means that
As we recently noted in Lee v. Spoden, 290 Va. 235, 246-48, 776 S.E.2d 798, 804-05 (2015), there are three issues to resolve when deciding whether res judicata applies: (1) whether there has been a final judgment on the merits, (2) whether the parties are the same, and (3) whether the later lawsuit arises from the same conduct, transaction, or occurrence as the earlier lawsuit.
The first two prongs are clearly satisfied in this case. First, Funny Guy's suit under the settlement agreement was dismissed with prejudice on demurrer. Such a ruling is a judgment on the merits. Griffin v. Griffin, 183 Va. 443, 449-50, 32 S.E.2d 700, 702-03 (1945). Second, all the parties in this case are identical to those named in Funny Guy's complaint under the settlement agreement. Accordingly, only the third prong is at issue here: whether Funny Guy's suit in this action on the oral agreement arises from the same conduct, transaction, or occurrence as its suit in the action on the settlement agreement.
The settlement agreement is not part of the same transaction as the oral agreement. See Montagna v. Holiday Inns, Inc., 221 Va. 336, 346, 269 S.E.2d 838, 844 (1980) (noting that "[t]he essential elements of a valid contract must exist to support a binding compromise settlement," because it is a new agreement, separate and apart from the settled underlying claim). In fact, as the majority notes, the circuit court found the settlement agreement did not exist.
The parties negotiated for a settlement agreement only after the defendants allegedly breached the oral agreement. Without the defendants' alleged breach of the oral agreement, the settlement agreement would never have been contemplated, and the parties would not have negotiated for it. Further, the consideration for the two agreements is different. The consideration for the defendants from the oral agreement was the work Funny Guy promised to perform; the consideration for the defendants from the settlement agreement was Funny Guy's release of its claim that they breached the oral agreement, its promise not to disparage them, and its withdrawal of the critical correspondence sent to third parties.
Likewise, the two actions do not arise out of the same conduct. The conduct giving rise to the breach of the oral agreement was the defendants' alleged failure to pay Funny Guy $75,790 after Funny Guy performed the work allegedly bargained for in the oral agreement. The conduct giving rise to the breach of the settlement agreement was their alleged failure to pay Funny Guy $73,290 after Funny Guy released its claims under the oral agreement, withdrew its critical correspondence to third parties, and agreed not to disparage the defendants. The acts by the defendants constituting the conduct were different, and they were committed at different times. Further, the acts the defendants induced Funny Guy to perform through their alleged promises to pay were different as well. Because the two alleged promises did not arise from the same conduct, transaction, or occurrence, res judicata is not applicable in this case.
While the majority emphasizes, and I agree, that whether claims arise from the same conduct, transaction, or occurrence should be determined pragmatically, I believe this analysis conforms to that description. According to the Restatement of Judgments (Second) § 24, this "pragmatic" determination considers "whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or
Nor were the parties' motivations the same. The defendants' motivations when entering into the oral agreement were to procure from Funny Guy the work that contract induced it to perform for them. Their motivation when they proposed the settlement agreement was not to procure work, but to induce Funny Guy to relinquish its claim for payment under that contract, as well as to induce it to withdraw its critical correspondence to third parties.
Nor do the two claims form a convenient trial unit. The evidence that a settlement agreement exists is necessary to prevail on a claim that it was breached, while such evidence is simultaneously inadmissible in a proceeding to recover under the underlying, purportedly-settled claim. Va. R. Evid. 2:408(a). The majority contends that this conflict in the evidentiary burden for the one claim and the evidentiary exclusion for the other can be resolved with separate evidentiary hearings, or limiting jury instructions. But these arrangements are hardly reflective of a "convenient trial unit" when they amount to two trials of the separate claims.
Nor am I persuaded that treating a settlement agreement as a single unit with the underlying claim purportedly settled by that agreement conforms to the expectation of parties who enter into a settlement agreement. To the contrary, parties who believe that they have executed a valid settlement agreement are likely to believe that they have released the underlying claim, so that the only action they can bring is for breach of the settlement agreement. When the plaintiff to the underlying claim bargains for a written settlement agreement, he or she is exchanging a claim based on, for example, an oral contract or a claim of negligence. One of the benefits he or she receives is that he or she no longer has to prove the defendant's culpability for that underlying claim — i.e., the existence or terms of the oral contract, or the duty or standard of care breached to cause negligence. Rather, he or she must only prove the terms of the written settlement agreement and that the other party breached them, resulting in damages. Conversely, the defendant to the underlying claim exchanges all defenses to that claim in exchange for, presumably, a reduced quantum of damages. One of the benefits he or she receives is a reduction in maximum liability. And what both parties receive is a reciprocal benefit of avoiding the costs of litigating the underlying claim, and the risk that a jury might decide it adversely to him or her.
The majority's holding in this case deprives parties who agree to settle of all those benefits of their bargain. Every time parties settle and one of them breaches the settlement agreement, the other party will have to prepare not only to litigate that breach but also the underlying claim, with all of its evidentiary burdens and litigation expenses.
The majority also opines that the best understanding of whether claims arise from the same conduct, transaction, or occurrence can be gleaned from Fox v. Deese, 234 Va. 412, 422-23, 362 S.E.2d 699, 705 (1987). However, as the Court's opinion in that case succinctly states, all of the claims there arose from a series of events with a single purpose: the plaintiff's efforts to promote a concert at the Richmond City Stadium on July 4-5, 1980. Id. at 416, 362 S.E.2d at 701. The claims in Funny Guy's October 2014 and June 2015 complaints do not arise from a series of events with the same purpose.
Funny Guy's June 2015 complaint pled a cause of action that accrued in 2013, after the defendants allegedly stopped paying it. This complaint alleged that the defendants broke a promise to pay Funny Guy for the work it performed. Funny Guy's October 2014 complaint pled a cause of action that accrued in 2014, after the defendants allegedly breached
Accordingly, I would hold that the circuit court erred by sustaining the defendants' pleas in bar on the ground of res judicata.
First, Bates relied on the same-evidence test that Rule 1:6 expressly disavowed. See Bates, 214 Va. at 672, 202 S.E.2d at 922 (holding that a claim based on a related but "separate" contract from the original suit was not subject to res judicata because "the evidence to support one is not necessary to support the other, but much of it that would be material to sustain the one would be irrelevant to the other" (citation omitted)).
Second, as Funny Guy conceded at oral argument, see Oral Argument Audio at 7:03 to 7:47, the claim under the settlement agreement allegedly barred by res judicata in Bates accrued after the filing of the first suit. This factual sequence renders res judicata inapplicable. See, e.g., Lawlor v. National Screen Serv. Corp., 349 U.S. 322, 328, 75 S.Ct. 865, 99 L.Ed. 1122 (1955) ("While the 1943 judgment precludes recovery on claims arising prior to its entry, it cannot be given the effect of extinguishing claims which did not even then exist and which could not possibly have been sued upon in the previous case."); Hatch v. Boulder Town Council, 471 F.3d 1142, 1149-50 (10th Cir. 2006); Los Angeles Branch NAACP v. Los Angeles Unified Sch. Dist., 750 F.2d 731, 739-40 (9th Cir. 1984); 18 Wright et al., supra note 8, § 4409, at 233 & n.10. In contrast, Funny Guy's claims in this suit (breach of contract and quantum meruit) accrued before Funny Guy had ever filed the first suit for breach of the alleged settlement agreement.
And if the first suit had gone to a jury with all three alternative claims, the trial court would have had the option to sequence the presentation of the evidence, to offer the jury a limiting instruction on the proper consideration of the settlement evidence, or, as Funny Guy even recognizes, see Oral Argument Audio at 30:21 to 30:47, to conduct separate evidentiary hearings if the court thought the jury might not follow the limiting instruction. In fact, the trial court sequenced the evidence in this case by directing the parties to present their arguments regarding res judicata before presenting evidence regarding privity of contract. See J.A. at 262-65. These are the ordinary tools used by experienced trial judges in a multitude of contexts. See, e.g., Allstate Ins. v. Wade, 265 Va. 383, 392-94, 579 S.E.2d 180, 185-86 (2003); Fox, 234 Va. at 423, 362 S.E.2d at 705; Fitzgerald v. Commonwealth, 219 Va. 266, 268-71, 246 S.E.2d 899, 901-02 (1978); see also Code § 8.01-272 ("The court, in its discretion, may order a separate trial for any claim."); Code § 8.01-281(B) ("The court may, upon motion of any party, order a separate trial of any claim, counterclaim, cross-claim, or third-party claim, and of any separate issue or of any number of such claims."); Va. R. Evid. 2:105 ("When evidence is admissible as to one party or for one purpose but not admissible as to another party or for another purpose, the court upon motion shall restrict such evidence to its proper scope and instruct the jury accordingly. The court may give such limiting instructions sua sponte, to which any party may object."); Va. R. Evid. 2:611(a) ("The mode and order of interrogating witnesses and presenting evidence may be determined by the court so as to (1) facilitate the ascertainment of the truth, (2) avoid needless consumption of time, and (3) protect witnesses from harassment or undue embarrassment.").
While this may seem to some as simply another attempt by Funny Guy to recover the $75,790 allegedly unpaid under the oral contract, the value to the defendants of Funny Guy's agreement to withdraw this administrative claim was undoubtedly worth more. Under section 1334 of the Small Business Jobs Act of 2010, codified at 15 U.S.C. § 637(d)(13)(C) (2012), contracting officers are required to consider a prime contractor's failure to ensure timely payment to subcontractors when evaluating the performance of the prime contractor. Thus, whether Funny Guy's claim was valid or not, two possible consequences flowed from it, and the defendants would have been right to worry about either of them. First, the claim may have led DHS to exclude the prime contractor from further contracts. Second, regardless of DHS's action, the prime contractor's embarrassment from Funny Guy's claim to DHS, or concerns about the defendants' competence raised by Funny Guy's allegations, may have led it to exclude them from further subcontracts. In either event, Funny Guy's administrative claim threatened the defendants' access to future government contract opportunities, which undoubtedly were worth more than $75,790 to them.
The difference in consideration between the oral agreement and the settlement agreement therefore is clear. So too is the additional injury Funny Guy suffered as a result of the defendants' alleged failure to perform under the settlement agreement after it had already complied with those terms.
The majority says that Funny Guy never raised this argument so we should not consider it. But Funny Guy has raised the argument. Its opening brief is replete with statements asserting, for example, that "[t]he ruling in Lawsuit I does not preclude Lawsuit II because Lawsuit I and Lawsuit II involve separate and distinct transactions in the form of separate and distinct contracts." (Emphasis in original.) The majority wants to require Funny Guy not only to say that the contracts are different, but specifically enumerate how they are different. But the differences between the contracts are manifestly apparent from the evidence in the record. And of course Funny Guy does not cite the Prompt Payment Act or Small Business Jobs Act of 2010 in its brief: it does not seek a state court adjudication on the merits of those federal law claims, which it withdrew while allegedly relying on the defendants' representations. Yet the requirement that Funny Guy withdraw those claims is one of the manifest differences between the two contracts.
The majority protests that this unfairly characterizes its holding but the difference of opinion is the consequence of our differing views over whether Funny Guy's claims in this appeal arise from the same conduct, transaction, or occurrence.