Opinion analysis: Court unanimously reverses 2nd Circuit on “defense preclusion,” but on very narrow grounds

This morning the Supreme Court reversed the U.S. Court of Appeals for the 2nd Circuit’s decision in Lucky Brand Dungarees, Inc. v. Marcel Fashions Group, Inc., holding that Lucky Brand is not precluded from raising a defense that could have been raised in a previous lawsuit between the same parties. In a unanimous opinion written by Justice Sonia Sotomayor, the court explained that “defense preclusion” is inapplicable in this case because the two lawsuits do not share the same claim to relief. Although resolving the case before it, the court’s narrow opinion leaves open the question whether defense preclusion is ever appropriate and, if so, under what circumstances.

Lucky Brand Dungarees and Marcel Fashions Group are competitors in the apparel business that both own various trademarks related to the term “Lucky.” For almost two decades now, the parties have been battling each other in a series of lawsuits. The first case involved Marcel’s “Get Lucky” mark and ended in a settlement, with Lucky Brand agreeing to cease using certain marks and Marcel releasing certain claims. In the second suit, a jury found that Lucky Brand infringed the “Get Lucky” mark, but it did not render a verdict on the scope or impact of the release. When Lucky Brand raised that release as an affirmative defense in the current litigation—which, notably, involves different trademarks—Marcel argued that this defense was precluded because Lucky Brand could have raised the release in the prior litigation. The 2nd Circuit agreed with Marcel, and now the Supreme Court has reversed that decision and remanded the case to the court of appeals.

As an initial matter, the Supreme Court acknowledged that “[t]here may be good reasons to question any application of claim preclusion to defenses.” But that key question did not need to be decided to resolve this case. Instead, the court explained, if defense preclusion were to apply, it would have to, at the very least, satisfy the requirements of either issue preclusion or claim preclusion. In this case, issue preclusion—which prevents the relitigation of an issue of fact or law when that issue was actually litigated, was determined by a valid and final judgment and was essential to the judgment—did not apply because the scope of the release was not actually litigated in the prior litigation. This meant that defense preclusion could only apply if the requirements of claim preclusion were met.

Claim preclusion generally prevents relitigation of the same claim, between the same parties (or those who share the parties’ legal interest), when the earlier action resulted in an adjudication on the merits. Unlike issue preclusion, claim preclusion extends to claims that could have been brought in the previous action even if they were not actually litigated. As the court put it, suits involve the “same claim” when they arise from the same transaction or involve a “’common nucleus of operative facts.’” Although this “same claim” standard is quite broad, the court unanimously determined that it is not satisfied in this case because the two suits “were grounded on different conduct, involving different marks, occurring at different times.” Where, as here, the requirements of neither issue nor claim preclusion are satisfied, defense preclusion simply cannot apply.

What’s probably most notable about the opinion in this case is what the court did not decide—that is, whether it is ever appropriate to apply claim preclusion to defenses. That is a difficult issue from a policy perspective, as discussed in more detail in the argument preview and argument analysis. On the one hand, recognizing defense preclusion would force defendants to litigate all possible defenses to final judgment, increasing litigation costs and overburdening courts. On the other hand, defense preclusion could promote the same policies as ordinary claim preclusion by requiring parties to resolve all possible defenses at the earliest opportunity, avoiding the type of serial litigation we’ve seen in this case. In the end, the court left resolution of that thorny issue for a later date and, instead, took the “narrow and easy” path to deciding this case that Justice Elena Kagan had suggested during oral argument.