Today’s post is for procedure geeks, especially those who litigate MDLs.
Offensive non-mutual collateral estoppel prevents a defendant from relitigating an issue that it lost in earlier litigation against a different plaintiff.
The issue is when offensive non-mutual collateral estoppel applies to a case that was part of an MDL. More specifically, the issue is which state’s law determines whether offensive non-mutual collateral estoppel applies in a particular case.
Before we discuss a recent case that provides a dubious (albeit helpful in the instance) answer to that question, a few words on some of the reasons why offensive non-mutual collateral estoppel is a bad idea, especially from a defense perspective.
Offensive non-mutual collateral estoppel risks perpetuating an erroneous result by preventing relitigation of issues already decided against a defendant. If the defendant loses the first case to reach final judgment, the doctrine gives disproportionate, preclusive weight to the decision of a lone judge or jury, no matter how wrong that decision.
The fact that an adverse judgment in the first case to reach final judgment can cripple a company’s defense in subsequent cases has two adverse consequences apart from the danger of perpetuating error. First, it gives the plaintiff tremendous leverage in settlement negotiations. Second, it induces defendants to spend much more litigating a case than would be warranted by the amount nominally in dispute.
Because it can cripple a company’s defense, offensive non-mutual collateral estoppel can be outcome determinative. Thus, the question whether it applies in a particular case is an important question when it arises. It is especially important in MDLs (and other coordinated proceedings) given the larger number of follow-on cases in which the doctrine could theoretically be invoked.
The impetus for today’s post is Dalbotten v. C. R. Bard, Inc., 2022 WL 2910125 (D. Mont. 2022), a case that had been part of the G2 IVC filter MDL in the District of Arizona but was then sent to the District of Montana for further proceedings. Asserting a failure-to-warn claim under Montana law, the plaintiff moved for summary judgment, arguing that the defendant was precluded from litigating the adequacy of its warning because a jury in a bell-weather case tried by the MDL court in the District of Arizona under Georgia law had previously found the warning inadequate. For reasons it does not adequately explain, the Dalbotten court concluded that Arizona law governed whether offensive non-mutual collateral estoppel applied. That was good for the defendant, because Arizona does not recognize the doctrine, but serious choice-of-law questions linger.
As the Dalbotten court recognized, the Supreme Court has held that in diversity cases a district court evaluating the applicability of offensive non-mutual collateral estoppel should follow “‘the law that would be applied by state courts in the State in which the federal diversity court sits.’” 2022 WL 2910125, at *2 (quoting Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508 (2001)).
Given this rule, one would think that the District of Montana would have applied Montana law when deciding whether the doctrine applied in Dalbotten. But instead it applied Arizona law.
Why? According to the court:
It is undisputed that this matter is a federal diversity case and a federal district court sitting in Arizona rendered the prior judgment at issue. Therefore, it should be rather straightforward that Arizona law applies to the preclusion determination.
2022 WL 2910125, at *2. But that conclusion does not follow from—and, indeed, seems contrary to—the rule that a federal court sitting in diversity applies the law of the state in which it sits.
The Dalbotten court did not explain the relevance of the fact that the prior judgment had been rendered in Arizona, where the MDL court was located. And it is hard to see the relevance. MDLs are a transitory procedural mechanism that should not affect substantive rights.
That said, the plaintiff’s arguments in favor of applying offensive non-mutual collateral estoppel were even less persuasive than the court’s reason for not applying the doctrine. The plaintiff argued that Arizona recognizes the doctrine and that even if it didn’t the question is governed by federal law. Neither assertion is correct. Arizona does not recognize the doctrine, and the Supreme Court has squarely held that state law governs the question in diversity cases.
So, we are left to ponder what law controls application of offensive non-mutual collateral estoppel in a case that had been part of an MDL. Is it the law of the state where the MDL was located, and where perhaps a bell-weather trial was held? Is it the law of the state whose substantive law governs the case? Is it the law of the state where the case is being heard?
Supreme Court precedent suggests that the question is controlled by the law of the state where the case is being heard. One could also imagine arguments in favor of applying the law of the state whose substantive law governs the case.
Dalbotten, however, applied the law of Arizona, which is neither the state where the case is being heard nor the state whose substantive law governs. Dalbotten did not say whether it did so because that is where the MDL was located or because that is where the bell-weather trial was held. If it applied Arizona law because that is where the MDL was located, the court, without analysis, adopted an MDL-specific rule. If it applied Arizona law because that is where the purportedly preclusive judgment was rendered, the court, without analysis, prioritized where the earlier judgment was rendered over where the subsequent case is being heard.
In Dalbotten, it probably did not matter whether the court applied Arizona or Montana law. As the court held, Arizona does not recognize offensive non-mutual collateral estoppel. And a moderately diligent search of Montana precedent and federal cases applying Montana law revealed no case recognizing the doctrine, which is likely why the plaintiff did not argue for application of Montana law.
Even if immaterial to the outcome in Dalbotten, it would be nice to have greater clarity on which law controls application of offensive non-mutual collateral estoppel. At minimum, MDL practitioners should be aware of Dalbotten. If the law of the state where the MDL is located governs subsequent application of the doctrine, practitioners will have to take that into account in deciding where MDLs are best located.