Commercial Litigation and Arbitration

Superboy: Judicial vs. Collateral Estoppel

Who owns the copyright for Superboy was the issue in Siegel v. Time Warner, Inc., 2007 U.S. Dist. LEXIS 56910 (C.D. Cal. July 27, 2007), and the answer turned on the preclusive effect to be given to findings of fact and conclusions of law made in 1948 by a referee appointed by the New York State Supreme Court, Westchester County in a contractual dispute between the predecessors in interest of the prior parties. Critical fact: the findings had been vacated by agreement of the parties when they settled the case on appeal 59 years ago. The plaintiffs were seeking to exercise a statutory right to terminate the contractual grant of rights given by their predecessor in interest in that settlement, in accordance with the subsequently-enacted Copyright Act of 1976. The District Court considered two issues — judicial estoppel and collateral estoppel.

Judicial Estoppel. It was clear that the defendants (assignees of the copyright) were taking a position concerning the referee's findings that was inconsistent with the position that they had taken in litigation between the same parties over the same copyrights in the 1970s. Defendants at that time urged that preclusive effect should be given the referee's findings; now they argued against it. The district court in the earlier litigation had relied on the referee’s findings in deciding in the defendants’ favor; the court of appeals, in affirming, did not. One would have though that this dictated application of judicial estoppel. But the issue was not that easy because, as District Judge Stephen G. Larson pointed out, to the extent that the referee’s findings were relied on in the 1970s litigation, that reliance was not material to the outcome of the case. Therefore, Judge Larson concluded that the three-factor test for judicial estoppel set out in New Hampshire v. Maine, \532 U.S. 742, 750-51 (2001), was not satisfied. (Note that New Hampshire requires success in the prior litigation as a prerequisite to the application of judicial estoppel. That is not the rule in all jurisdictions. That could be outcome determinative on these facts.)

Collateral Estoppel. Judge Larson did apply the doctrine of collateral estoppel, even though the referee’s findings had been vacated by agreement of the parties in 1948 — but binding only as to factual matters and matters of state law, not as to any issues of federal law. His reasoning:

1. Federal courts must give a state court judgment the same preclusive effect as would be given to that judgment under the law of the State in which the judgment was rendered.

2. Normally, under New York law, a judgment that has been vacated loses its preclusive effect.

3. New York would likely recognize an exceptional-circumstances exception, as other jurisdictions have and as is recognized in § 28 of the Second Restatement of Judgments.

4. Exceptional circumstances exists because, in addition to the need to conserve judicial resources, with the passage of amost years, it would be virtually impossible to find facts as accurately as was done, in a thorough manner, in the 1940s (‛To believe that the factual issues actually litigated before the referee in the 1947 Westchester action could be relitigated in the present proceeding without a significant degradation of the reliability of the conclusions reached in this proceeding would give this Court and the parties' counsel too much credit“).

5. In light of the longstanding Congressional grant of exclusive jurisdiction over copyright to the federal courts, and in accordance with the Supreme Court’s decision in Becher v. Contoure Labs., Inc., 279 U.S. 388 (1929), ‛federal courts are to give preclusive effect to earlier state determinations of state questions pleaded in the complaint, even if such state law issues arise in a subsequent action within the federal court's exclusive jurisdiction, like copyright or patent. Such estoppel, however, only operates as to the purely state law claims (and attendant facts) decided by the state court.“ Issues of federal law are solely for the federal courts to decide.

Held, the referee's findings entered in 1948 in the Westchester County action must be given preclusive effect pursuant to the doctrine of collateral estoppel to the extent indicated above.

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