Don't Bet the Business

Sometimes it is helpful to look at the outcome of cases and remember that the law is often intuitive.

Lawyers learn in the first year of law school that the doctrine of res judicata states that a judgment on the merits in a prior suit involving the same parties or their privies bars a second suit based on the same cause of action. This was one of the rules of civil procedure that, at least for this student, was fairly easy to grasp.  I soon learned, however, that for every rule that seems immutable there are inevitably exceptions.

One such exception to the res judicata doctrine involves claims of so-called continuing wrongs.  For example, if a party sues another for breach of a contract and receives a damage award by way of a final judgment will res judicata prevent a second action based on a new, independent contractual breach?  The intuitive answer plainly is no.

Michigan law provides that the doctrine of res judicata prevents multiple lawsuits seeking to litigate the same cause of action.  Specifically, res judicata bars a second lawsuit when the first case was decided on the merits, when both cases involve the same parties or privies, and when the dispute raised in the second case – was, or could have been – raised and decided in the first case.

Although the Michigan courts take a broad approach to the doctrine of res judicata, typically finding that the doctrine bars not only claims actually litigated but also every claim arising from the same transaction or occurrence that the parties, exercising reasonable diligence, could have raised but did not; the courts do draw lines. 

Res judicata will not bar a second suit based on a contract raised in a prior action when the claim subsequently raised involves a second, independent contractual breach, or when the second claim is for a continuing wrong.  Simply, and intuitively, res judicata cannot extinguish claims that did not exist and which, therefore, could not possibly have been raised in a prior lawsuit. Put another way, a prior judgment on the merits will only preclude a second suit when it involves the same transactions or occurrences raised in the first action and when the second lawsuit requires the same evidence to support it and is based on facts that were also present in the first lawsuit.

An exception to the exception may arise when the plaintiff in a second case is merely claiming additional damages.  In such a case, the res judicata analysis discussed above likely will not apply.  Rather, the second case will survive a res judicata analysis only where the facts support a finding that the defendant committed a new, independent contractual breach. To explain this exception to the exception, the courts sometimes borrow from tort law which provides that a continuing wrong is established by a continuing tortious act rather than from continued harm stemming from a prior act.

All this may seem obvious but it does not stop the litigation or the need for the appellate courts to remind us of the rules and how they are to be followed. And even when the rules are clear and understood, there may be good faith disputes over whether a subsequent claim amounts to a continuing wrong, which may be actionable, or merely constitutes a claim for continuing damage which res judicata will sweep away.