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U.S. Supreme Court Cites Judgments 2d

U.S. Supreme Court Cites Judgments 2d

In addressing the concept of “defense preclusion”—or the question of when, if ever, res judicata applies to defenses raised in a later lawsuit—the U.S. Supreme Court concluded that a defense could be barred in subsequent litigation only if the causes of action were the same in both suits according to traditional principles of claim preclusion or issue preclusion described in the Restatement of the Law Second, Judgments.

The case, Lucky Brand Dungarees, Inc. v. Marcel Fashions Group, Inc., No. 18-1086, arose from a series of trademark actions between two clothing sellers that used the word “Lucky” as part of their marks on clothing. In 2005, Lucky Brand Dungarees, Inc. (Lucky Brand), which owned the “Lucky Brand” mark, sued its competitor, Marcel Fashions Group, Inc. (Marcel), which used the phrase “Get Lucky” on its clothing, alleging that Marcel violated Lucky Brand’s trademarks; Marcel counterclaimed that Lucky Brand violated the parties’ prior settlement agreement by continuing to use Marcel’s “Get Lucky” mark. The district court denied without prejudice Lucky Brand’s motion to dismiss Marcel’s counterclaims, in which Lucky Brand alleged that the counterclaims were barred by a release provision in the settlement agreement, and, after concluding as a sanction for misconduct during discovery that Lucky Brand breached the settlement agreement by using Marcel’s “Get Lucky” mark, entered judgment on a jury verdict in favor of Marcel on its remaining counterclaims asserting infringement based on Lucky Brand’s use of the phrase “Get Lucky” alongside its own marks.

In 2011, Marcel sued Lucky Brand, alleging that “Lucky Brand’s continued, post-2010 use of Lucky Brand’s own marks [ . . . ] infringed Marcel’s ‘Get Lucky’ mark.” The district court, on remand from the U.S. Court of Appeals for the Second Circuit, granted Lucky Brand’s motion to dismiss, in which Lucky Brand argued for the first time since early in the 2005 action that Marcel’s claims were barred by the release provision in the settlement agreement. The Second Circuit vacated and remanded based on the doctrine of “defense preclusion,” concluding that Lucky Brand was prohibited from raising the release provision as a defense in the 2011 action because it either raised or should have raised it in the 2005 action.

The Supreme Court reversed and remanded, holding, among other things, that issue preclusion did not apply, and that claim preclusion could not bar Lucky Brand from asserting its defense based on the release provision in the 2011 action, because the 2011 action was not the “same” as the 2005 action, as the two suits did not share a “common nucleus of operative facts” within the meaning of Restatement of the Law Second, Judgments § 24. Associate Justice Sonia Sotomayor, writing a unanimous opinion, explained that the 2011 action involved different marks, different legal theories, and different conduct from the 2005 action. Specifically, the Court pointed out that the underlying dispute in the 2005 action centered around Lucky Brand’s alleged infringing use of Marcel’s “Get Lucky” mark; in contrast, the 2011 action dealt with Lucky Brand’s alleged infringement through its use of its own marks containing the word “Lucky,” rather than the “Get Lucky” mark itself.

The Court also pointed out that “the complained-of conduct in the 2011 [a]ction occurred after the conclusion of the 2005 [a]ction,” and that, according to Restatement of the Law Second, Judgments § 24, “[e]vents that occur[red] after the plaintiff file[d] suit often [gave] rise to new ‘material operative facts’ that ‘in themselves, or taken in conjunction with the antecedent facts,’ create[d] a new claim to relief.” In addition, neither issue preclusion nor claim preclusion was appropriate under Restatement of the Law Second, Judgments § 22, which barred cases involving enforcement of a judgment or a collateral attack on a prior judgment, because Lucky Brand’s defense to Marcel’s new claims in the 2011 action did not risk impairing the 2005 judgment. The Court elaborated that, “while the judgment in the 2005 [a]ction plainly prohibited Lucky Brand from using ‘Get Lucky,’ it did not do the same with respect to Lucky Brand’s continued, standalone use of its own marks containing the word ‘Lucky’—the only conduct at issue in the 2011 [a]ction.”