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Where High Court May Land On 'Defense Preclusion' Question

April 13, 2020
Law360 Expert Analysis

Some requests need few reminders. In World War II, soldiers who smoked were doubtless eager to enjoy their ration of cigarettes, and awaited the call to “take ten; smoke ‘em, if you got ‘em.”

For civil defendants, receipt of a lawsuit is the call to assert affirmative defenses if you have them. Like the smoking soldier, the civil defendant scarcely needs a second reminder of this window of opportunity, and most answers include an expansive list of affirmative defenses.

Yet two recent cases serve as reminders that the standard list of affirmative defenses must be supplemented after careful consideration of the pleadings, applicable statutes and case law. Failure to do so can lead to waiver, increased litigation costs or both.

In Lucky Brand Dungarees v. Marcel Fashion Group, the U.S. Supreme Court is currently considering whether to accept defense preclusion to bar affirmative defenses in a second action that were not fully litigated in an earlier action between the parties. In one of several opinions in the 20-year serial patent litigation between Lucky Brand Dungarees and Marcel Fashions, the U.S. Court of Appeals for the Second Circuit held that preclusion principles prevented defendant Lucky Brand from raising release as an affirmative defense in a 2011 case, because it failed to litigate the affirmative defense in a 2005 case against the same plaintiff.

The Second Circuit articulated a four-part test to discern whether the defendant would be barred from raising the defense: (1) previous adjudication on the merits, which (2) involved the same parties or those in privity with the parties, where (3) the defense was asserted or could have been asserted, and (4) the judge determines precluding the defense in the second action serves an efficiency interest that outweighs any unfairness to the party.[1]

At first glance, this test appears sensible and efficient, particularly for the defense of release. After all, release is an affirmative defense that must be raised or it is waived.[2] And, as the Second Circuit noted, Marcel’s 2011 action was styled as an enforcement action of a judgment (and not a new claim).

If the facts were consistent with this style, then the case would have presented a noncontroversial occasion to preclude the defense. This is because “[the] simplest rule of all is that direct enforcement of a judgment cannot be resisted merely by raising defenses that might have been raised before the judgment was entered.”[3]

This rule supports finality of judgments, and avoids duplicative, wasteful litigation. Were it otherwise, judgment-debtors could not pay the judgment and then relitigate the merits when the creditor sought to enforce the judgment.

Yet Marcel’s 2011 action was not actually an enforcement action, as it included new claims that could not have been raised, much less favorably adjudged, in the 2005 action. The Second Circuit found as much in an earlier appeal, rejecting Lucky Brand’s argument that Marcel’s 2011 action was barred by res judicata.

Nevertheless, the Second Circuit relied heavily on the previous litigation when finding that Lucky Brand had waived its release defense. The Second Circuit could not find a reason in the record as to why the defense was not litigated in the 2005 case, and surmised that Lucky Brand’s change of counsel was the only reason for standing on the release defense in 2011 when it had not in 2005.[4]

The Second Circuit found that the trial court erred by allowing Lucky Brand to raise the release defense in the 2011 action and ordered a remand. The case went up to the Supreme Court rather than back down to the trial court.

The Second Circuit’s opinion did not receive a warm reception at the Supreme Court. At oral argument, Justice Stephen Breyer said that he thought the Second Circuit was the only court to ever hold that a defendant was barred from raising a defense when the plaintiff asserted new claims in a separate action.[5]

Justice Elena Kagan agreed that the court had “never really seen anything like this.”[6] Justice Neil Gorsuch repeatedly pressed Marcel’s counsel to concede that this was not a judgment enforcement action and noted the asymmetry problem: The plaintiff could bring new claims but the defendant could not bring new defenses.[7]

Chief Justice John Roberts wondered if defense preclusion created a perverse incentive to litigate every conceivable defense irrespective of the amount in controversy.[8] And in response to Marcel’s attempt to recast the 2005 and 2011 cases as either the same “cause of action” or “arising from the common nucleus of operative facts,” Justice Ruth Bader Ginsburg reminded that the Federal Rules of Civil Procedure concerned “claims for relief.”[9]

Only Justice Samuel Alito seemed sympathetic to Marcel’s argument — albeit not on the reasoning from the Second Circuit. Instead, Justice Alito suggested to both sides that there was authority that the identity of the claims was not dispositive if the asserted defense had the effect of undermining the first judgment.[10]

After oral argument, it seems safe to say that the Supreme Court will not affirm the Second Circuit’s holding. Preclusion is hardly a novel area of the law, and — outside of an actual or functional collateral attack on an earlier judgment — no case seems to stand for the proposition that the defendant is stuck with the defenses it raised in an earlier action when the plaintiff is not similarly circumscribed on its claims.

The concerns of asymmetry between the parties in the second suit and the inefficiency of incentivizing litigation on every conceivable defense bolster the likely reversal. Either way, the two-decade saga will continue between the parties.

In a completely different context, the South Carolina Court of Appeals recently found that Target waived a statutory cap on punitive damages by failing to plead it or raise it by the close of discovery.[11] The case, Garrison v. Target Corp., followed a premises liability trial.

Carla Garrison was reading a coupon book in a Target parking lot when her child found a dirty syringe on the ground. Garrison slapped the syringe out of her child’s hand, and in doing so, pricked herself. She and her husband sued. They submitted a $12,000 offer of judgment, which was not accepted. At trial, the jury awarded $100,000 in compensatory damages as well as $4.5 million in punitive damages.

The statutory cap was one of several issues on appeal. South Carolina, like many states, has a tiered punitive damages statute. Punitive damages are capped at three times the compensatory damages or $500,000 unless the trial court found one of five exceptions that either raise the cap or eliminate it altogether.[12]

In this case, the Garrisons argued that Target waived the cap because it did not raise it as an affirmative defense in the responsive pleadings. As a result, the Garrisons argued that they did not introduce more evidence at trial to show that the following exception to the cap would have applied. The wrongful conduct was: motivated primarily by unreasonable financial gain [and that] the unreasonably dangerous nature of the conduct, together with the high likelihood of injury resulting from the conduct, was known or approved by a managing agent [or other responsible party].[13]

The majority of the court agreed that the cap was waived, and stated that the cap had to be raised in the answer or, at a minimum, before the close of discovery so that the plaintiff would be aware of the additional evidence it needed to remove the cap.

Strikingly, both the majority and dissent supported their argument by revealing an unrealistic fiction undergirding the other side’s opinion. The majority distinguished state and federal circuits that found such caps were self-executing, and celebrated that its holding that, by contrast, disregarded “the fiction that a plaintiff is automatically on notice that a defendant will invoke a statutory cap to limit a jury’s award.”[14]

Without such a fiction, it was unfair for the defendant to raise the defense after the close of discovery. On the other hand, the dissent pointed out that “[l]awyers who have smoking guns use them,” and it was doubtful that Target’s failure to allege the cap as an affirmative defense affected what evidence the plaintiff presented on the key issue in premises liability case.

On this legal realism point, the dissent surely wins, as it is hard to imagine Garrison did not bring her best evidence in a case where the jury awarded her punitive damages at 45 times the compensatory damages. Likewise, Target contested liability and argued that the plaintiff had not marshaled enough evidence to get past summary judgment.

Given that, it is hard to understand the plaintiff’s argument that she was surprised that Target would also argue that the evidence did not establish that a managing agent approved or knew about the unreasonably dangerous conduct that was primarily motivated by financial gain at the punitive stage. While some of South Carolina’s punitive damage amplifiers, like torts caused while the tortfeasor was intoxicated, may be established by the original case, the plaintiff knew at the outset that her punitive damages amplifier required additional evidence.

The dissent also reasoned that the statute’s text and the text of Rule 8(c) on pleading affirmative defenses suggest that a statutory cap is not an affirmative defense or avoidance. First, the South Carolina Legislature required a claim for punitive damages to be pleaded while it did not impose a similar requirement for the cap to apply.

Second, a statutory cap is not, like the affirmative defenses listed under Rule 8(c), a bar to liability and, unlike all the other enumerated defenses, is instead a bar to damages. Moreover, the statutory cap was not an avoidance — because avoidances require the defendant to raise different facts to defeat a cause of action.

Although public policy or “purposivist” readings have fallen out of favor, the dissent also noted that a self-executing cap works to eliminate the arbitrariness of punitive damages awards, which was a primary aim of the statute. By contrast, conditioning caps on pleadings ends in arbitrariness. It is hard to imagine a legislator compelled to impose caps on punitive damages but also wanting to make it contingent on the defendant’s pleading.

Tabling any disagreement with the Court of Appeals’ holding, Garrison recommends a belt-and-suspenders pleading on affirmative defenses. Cases like this reinforce defense lawyers’ reluctance to not plead every conceivable defense.

Likewise, while the Supreme Court appears unlikely to accept the Second Circuit’s defense preclusion holding in Lucky Brand, the cost of procuring that reversal was doubtless significant. Cluttered, top-heavy responsive pleadings are battle scars from cases like these that condition lawyers to not risk waiver. They are here to stay. In Garrison and Lucky Brand, a familiar refrain is amplified: When it comes to affirmative defenses, plead ‘em if you got ‘em.

S. Christopher Collier is a senior partner and Michael Arndt is a senior associate at Hawkins Parnell & Young LLP. Reid Hansen is a student at Georgia State University College of Law.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Marcel Fashions Grp. Inc. v. Lucky Brand Dungarees Inc., 898 F.3d 232, 241 (2d Cir. 2018)

[2] Fed. R. Civ. P. 8(c).

[3] Wright & Miller, 18 Fed. Prac. & Proc. Juris. § 4414 (3d ed. 2018)

[4] Marcel Fashions, 898 F.3d at 241-42, n. 9.

[5] Oral Argument Tran., p. 39; available here: https://www.supremecourt.gov/oral_arguments/argument_transcripts/2019/18-1086_1b7d.pdf

[6] Oral Argument Tran, p. 58, available here: https://www.supremecourt.gov/oral_arguments/argument_transcripts/2019/18-1086_1b7d.pdf

[7] Oral Argument Tran, p. 38-9; 50

[8] Oral Argument Tran., p.28

[9] Oral Argument Tran, p. 30

[10] E.g., Oral Argument Tran. 6 & 42. On this point, Marcel argues that the defense would undermine the earlier judgment. Lucky Brand counters that Marcel received the ordered-judgment (money and an injunction) from the first action, and the second case could not affect that.

[11] Garrison v. Target Corp., No. 5711, 2020 S.C. App. LEXIS 7, at *59 (Jan. 15, 2020).

[12] S.C. Code Ann. § 15-32-530

[13] S.C. Code Ann. § 15-32-530(b)(1)

[14] Garrison, 2020 S.C. App. LEXIS at 54.