Res Judicata is No Laughing Matter – Just Ask The Funny Guy

Written by Matthew L. Liller, Esq.

Edited by William J. Pfund, Esq.

The Supreme Court of Virginia recently looked closely at the issue of res judicata, a defense barring a plaintiff from bringing a second lawsuit on the same claim, in the all-too-serious case of The Funny Guy, LLC, et al. v. Lecego, LLC, et al., 293 Va. 135, 795 S.E.2d 887 (2017). The underlying dispute between the parties was simple: Funny Guy contended it was not paid for I.T. work it performed for Lecego. However, in this 4-3 decision, it was Lecego that ultimately laughed all the way to the bank.

Funny Guy filed a lawsuit in October 2014 alleging that the parties reached a settlement agreement to the dispute, but Lecego breached that agreement by failing to pay any of the agreed-upon amount. This suit was dismissed because the trial court found no such agreement existed. In June 2015, Funny Guy filed a second lawsuit alleging that (1) Lecego breached an oral agreement to pay for the services given, and (2) even if there were no oral agreement, it should be paid for the value of the work performed. The trial court then dismissed the second suit because it held those claims should have been asserted in the first suit and were therefore barred.

The Court looked at Rule 1:6 of the Rules of the Supreme Court of Virginia, which states in pertinent part:

“A party whose claim for relief arising from identified conduct, a transaction, or an occurrence, is decided on the merits by a final judgment, shall be forever barred from prosecuting any second or subsequent civil action against the same opposing party or parties on any claim or cause of action that arises from that same conduct, transaction or occurrence . . . .”

The logic behind this rule is to avoid subjecting the parties – and the judicial system – to two separate lawsuits to resolve one underlying dispute. Put simply, litigants must make the most of their day in court or risk the preclusion of their other claims against a particular defendant.

The Court disfavored its prior test for preclusion, set forth in Davis v. Marshall Homes, Inc., 265 Va. 159, 576 S.E.2d 504 (2003), wherein it established the “same-evidence test” to determine whether a subsequent claim could be brought. This test looked at whether the same evidence is necessary to prove each claim. If the claims involved different, though related, fact patterns, res judicata did not apply even if the claims arose out of the same underlying dispute.

In direct opposition to the Davis test, Rule 1:6 was adopted in 2006. Under this Rule, 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 analyzes whether the two cases arise out of the same transaction or occurrence, which parallels Virginia’s joinder statutes §§ 8.01-272 and 8.01-281. Accordingly, the Davis test is no longer applicable.

The Court stated that deciding what constitutes a single transaction or occurrence under Rule 1:6 should be a practical analysis which asks whether the facts are related in time, space, origin, or motivation; whether the form a convenient trial unit; and whether their treatment as a unit conforms to the parties’ expectations or business understanding or usage. No single factor is indispensable or determinative.

In applying this analysis to the case, the Court held that Funny Guy was precluded from bringing the second suit. The origin and motivation for the claims was Funny Guy’s desire to get paid for its work. A single payment dispute was ongoing and uninterrupted. The three alternative theories of recovery all fit within a single factual narrative that forms a convenient trial unit. Furthermore, reasonable commercial parties would not expect or want a payment dispute to result in multiple lawsuits. Accordingly, the trial court’s decision was affirmed.

Three dissenting justices felt the allegations presented by Funny Guy were unrelated enough to warrant separate actions, and asserted that the two actions did not arise out of the same transaction (the oral contract and the settlement agreement were effectuated at different times), the same occurrence (Funny Guy’s causes of action for breach arose at different times), or the same conduct (the conduct giving rise to each breach involved different amounts). Furthermore, the dissenting justices felt the two claims did not make a convenient trial unit because evidence needed to prevail on breach of a settlement agreement – the existence of a settlement agreement – is inadmissible under the Rules of Evidence in a proceeding to recover under breach of the oral contract. Nonetheless, the majority disagreed and prevailed.

Following Funny Guy, plaintiffs must think carefully when bringing suit against a particular defendant as to whether they have any additional claims that can be asserted. Defendants, on the other hand, should be prepared to assert res judicata if ever faced with a subsequent suit from the same plaintiff relating in any way to a prior suit. Failing to make the most out of one’s day in court is no laughing matter.

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