May 07, 2008

Res judicata bars challenge to performance bond after judgment on injunctive relief claim; Privity gives right to assert defensive collateral estoppel


Travelers Casualty & Surety Company of America ("Travelers") as subrogee of Smith Mechanical Contractors, Inc. ("Smith Mechanical") sued Lawyer's Title Insurance Company ("Lawyer's Title") and First Tennessee Bank National Association ("the Bank") seeking, among other things, a judgment declaring a mechanic's lien filed by Smith Mechanical to have priority over a deed of trust held by the Bank with regard to real property located in Johnson City, Tennessee. Lawyer's Title and the Bank filed a motion to dismiss or for summary judgment.

After a hearing, the Trial Court entered an order finding and holding, inter alia, that Travelers' complaint was barred under the doctrine of res judicata; that the complaint was barred under the compulsory counterclaim rule; that Travelers never acquired Smith Mechanical's mechanic's lien rights; and, that the Bank had recorded a payment bond ("Performance Bond"), which operated to discharge Smith Mechanical's lien from the real property. Travelers appeals to this Court. We affirm.

Opinion may be found on TBA website:

"Parties asserting a res judicata defense must demonstrate that (1) a court of competent jurisdiction rendered the prior judgment, (2) the prior judgment was final and on the merits, (3) the same parties or their privies were involved in both proceedings, and (4) both proceedings involved the same cause of action." Id. (citations omitted).

"[O]nce the judgment on the merits became final in the second lawsuit seeking injunctive relief, the doctrine of res judicata through the principle of claim preclusion operates to bar any claims involving the same cause of action which were or could have been brought by Barker Building and Travelers against the Bank in that same action. This includes any claims against the Bank challenging the validity of the Subordination Agreement and Performance Bond." Id.

"Collateral estoppel, an issue preclusion doctrine, ... bars the parties or their privies from relitigating issues that were actually raised and determined in an earlier suit. ... Collateral estoppel may be used by a defendant in the second suit (defensive collateral estoppel), or it may be used by a plaintiff in a second suit (offensive collateral estoppel). In Tennessee the offensive use of collateral estoppel requires that the parties be identical in both actions. Without saying so specifically, however, Tennessee has not required party mutuality in applying defensive collateral estoppel." Id. (citations omitted).

"The issue sought to be precluded in this instance is the issue regarding the validity of the Performance Bond. Lawyer’s Title is in privity with the Bank with regard to this issue. Given this and the fact that the issue sought to be precluded went to final judgment on the merits in [the case] discussed above, Lawyer’s Title can utilize defensive collateral estoppel." Id. (citations omitted).