4. D is a partnership. W and H are wife and husband. In reliance upon statements made by employees of D, W and H each made separate purchases of bonds issued by D. The price of these bonds subsequently plummeted and W and H each had to sell them at a heavy loss. W sued D in federal court in New York for her damages resulting from D’s alleged violation of federal securities laws. On a motion for summary judgment, the court found that no reasonable jury could find that the statements made by D’s employees were materially misleading. The court therefore granted summary judgment to D. Subsequently, D was purchased by the X Corp. After this purchase, H sued the X Corp in federal court in California for H’s damages as a result of D’s violations of federal securities laws. Which of the following is most accurate?
a. Under Parklane Hosiery, H is issue precluded from relitigating whether D’s employees’ statements were materially misleading.
b. H is not issue precluded under Parklane Hosiery from relitigating whether D’s employees’ statements were materially misleading, because H could have easily intervened in W’s suit against D.
c. Parklane Hosiery is irrelevant to whether H is issue precluded, since the matter is determined by New York state law.
d. H is not issue precluded from relitigating whether D’s employees’ statements were materially misleading, because the X Corp and D are not in privity.
e. H is not issue precluded from relitigating whether D’s employees’ statements were materially misleading, because W and H are not in privity.
Answers a and b are clearly wrong. Parklane Hosiery is irrelevant here. Why? Parklane is about someone who was not a party (or in privity with a party) in earlier litigation taking advantage of issue preclusion. Parklane never suggests that whoever is disadvantaged by issue preclusion – that is, bound by the earlier adverse determination of the issue – can be someone who was not a party (or in privity with a party) in the earlier litigation. The question here is whether H (someone who was not a party or in privity with a party in the earlier litigation) can be bound.
Answer c is wrong too. It is true that Parklane is about the federal law of issue preclusion. It is also true that it is an open question whether the issue preclusive effect of a judgment of a federal court sitting in diversity is determined by federal law or the law of the state where the federal court is located. This Erie question has not yet been determined by the Supreme Court (although Semtek suggests that it might be state law). But it is clear that the issue preclusive effect of the earlier judgment in this question is a matter of federal law, since the federal court that issued the judgment had federal question jurisdiction.
Answer d is wrong as well. First of all, D and the X Corp are in privity. There is privity because the X Corp is a successor in interest. But, what is more important, the primary obstacle to issue preclusion here is that the party to be bound (H) was not a party and was not in privity with a party in the earlier litigation.
That’s why e is right. It is true that some courts have in highly unusual situations issue precluded someone who was not a party or in privity with a party. But there is no reason to think that this is one of those situations. Indeed I said a number of times in class that spouses are not in privity. (After all, as those of you who are married know, spouses’ interests do not always overlap.) The point biserial was .47.