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Claim Preclusion Case Analysis

By: dmc-admin//July 6, 2005//

Claim Preclusion Case Analysis

By: dmc-admin//July 6, 2005//

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The dissent’s concerns about the majority opinion seem to overstate the consequences in several ways.

First, it must be noted the majority and dissent did not agree on the facts. The dissent asserts that Menard was continuing to return merchandise while the first lawsuit was pending, something the majority found not to be demonstrated by the record.

Had the majority merely agreed with the dissent on this fact, the result would have been different. The majority specifically found that the business relationship terminated a year prior to terminal complaint and that all of the allegedly defective goods had been returned prior to commencement of the action.

The majority explicitly stated that if material operative facts occur after the first judgment is rendered, claim preclusion would not apply. This was its basis for overturning the bright-line rule that the court of appeals had drawn — that any judgment on an invoice would bar a claim based on return of defective goods.

Second, the dissent ignores that Menard had the opportunity to assert its counterclaims, had it only answered the original complaint in a timely fashion, or had its neglect in doing so been found excusable. The majority opinion observed, “The issue here is whether Menard’s suit should have been allowed to proceed in the first instance.

While the record from Menard’s subsequent suit may reflect that Liteway provided some credit after it filed its suit, the time for Menard to argue that the sum demanded by Liteway was incorrect was in Liteway’s original action.”

The court added, “common sense [dictates] that a party should not be permitted to sit back and allow a default judgment to be entered against it, through its own inexcusable neglect, and then attempt to circumvent the effect of that default judgment by raising its original defenses and counterclaims as a separate action under the UCC, in a different branch of the circuit court.”

In short, had Menard merely filed an answer to the original complaint, any issues concerning the return of additional merchandise after the date of the complaint could have been addressed in the original action. Litigation takes time, and it can be stayed if more goods turn out to be defective. Future buyers can easily avoid forfeiting their claims against sellers by answering the complaints filed against them.

Furthermore, while the dissent argues that the decision places Wisconsin outside the mainstream of jurisdictions and “places Wisconsin in the unique and undesirable position of being a state that denies to buyers the remedies available under the UCC,” the decision is consistent with Seventh Circuit law going back to at least 1977.

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Defect is compulsory counterclaim

Warshawsky & Co. v. Arcata National Corp., 552 F.2d 1257 (7th Cir. 1977), involved a dispute between a mail order seller and its printer.

Over a five-year period, Arcata printed millions of catalogs for Warshawsky. The relationship turned acrimonious and Warshawsky sued in Illinois federal court to recover for claimed breaches of the agreement. A week later, Arcata sued in California for amounts owing. Warshawsky, at 1259.

Warshawsky moved to enjoin the California proceedings, and the Seventh Circuit held they must be enjoined, agreeing that Arcata’s claims are compulsory counterclaims arising out of the same transaction. Id., at 1263. Thus, the majority’s decision does not appear to be any different than it would have been had Menard brought its case in federal court.

Warshawsky may have involved simultaneous litigation in different jurisdictions, rather than whether claim preclusion applies, but the compulsory counterclaim analysis is consistent with the majority opinion in the case at bar.

– David Ziemer

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David Ziemer can be reached by email.

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