Parklane Hosiery Co. v. Shore

Brief Fact Summary.

The SEC brought an action seeking injunctive relief against Petitioners and asserting that Parklane’s proxy statement was materially false and misleading. The federal district court entered a declaratory judgment that the proxy statement was materially false and misleading, and the court of appeals affirmed. In Respondent’s subsequently filed stockholder’s class action against the same Petitioners, Respondent moved for partial summary judgment on the issue of the materially false and misleading proxy statement. The district court denied the motion; the Court of Appeals reversed. The Supreme Court granted certiorari.

Synopsis of Rule of Law.

A litigant who was not a party to a prior proceeding can use collateral estoppel “offensively,” and preclude a defendant from relitigating an issue that was determined in the prior proceeding.

Facts.

In a prior federal court proceeding, the SEC filed a complaint against Petitioners seeking injunctive relief. The SEC asserted, and the district court found, that Parklane’s proxy statement was materially false and misleading. The federal district court in the SEC’s action entered a declaratory judgment that the proxy statement was materially false and misleading. The Court of Appeals affirmed. Subsequently, Respondent’s filed a stockholder’s class action complaint against the Petitioners, who were the same parties against whom the SEC’s action was filed, alleging violations of various federal securities laws and regulations. In the subsequent action, Respondent moved for partial summary judgment on the issue of the materially false and misleading proxy statement. The district court denied the motion for partial summary judgment. The Court of Appeals reversed. The Supreme Court granted certiorari.

Issue.

If an issue has been resolved against a party in a prior equitable action, can another party, in a subsequent legal action, preclude relitigation of that issue before a jury?

Held.

Yes. If an issue was resolved against a party in a prior equitable action, another party, in a subsequent legal action, may use “offensive” collateral estoppel to preclude relitigation of that issue before a jury.

Discussion.

A litigant who was not a party to a prior proceeding may use collateral estoppel “offensively” to preclude a defendant from relitigating a matter resolved in an earlier proceeding. Generally, if a plaintiff could easily have joined the earlier proceeding, or if the application of collateral estoppel offensively, to preclude a defendant from relitigating an issue, is unfair, then the trial judge’s discretion should be exercised to disallow the use of offensive collateral estoppel. Here, Respondent could not have joined the SEC’s prior litigation, and there was no unfairness to Petitioners.