State Court Loss Bars Federal Court Claims

Randi Klein Hyatt
Randi Klein Hyatt

Most lawyers are familiar with the concepts of res judicata and collateral estoppel.  While infrequently litigated (due, in part, to the significant costs of taking many business cases through trial), occasions do arise where litigants sometimes try their hand in a second forum.  This may be done because the litigants feel that another forum may be more advantageous, additional discovery would be available, or for a host of other reasons.  Nevertheless, these second bites of the apple rarely succeed.

This tactic was utilized in Cognate Bioservices, Inc., et al. v. Alan K. Smith, et al., Civil Action No. CCB-13-1797, which was filed in the United States District Court for the District of Maryland (“The Federal Action”).  In the Federal Action, Cognate and other plaintiffs alleged that Mr. Smith and other defendants violated the Computer Fraud and Abuse Act and misappropriated products and trade secrets.  The problem for the plaintiffs, however, was that Cognate already alleged similar claims in a state court action (“State Action”) that was pending at the time they filed the Federal Action.

In the State Action, Smith sued Cognate and others for wages.  Cognate thereafter counterclaimed for, among other things, misappropriation of products and trade secrets.  A jury in the State Action found for Smith and against Cognate on all of the claims.  Based on the results of the State Action, Smith asked the federal court to dismiss Cognate’s federal claims, arguing that they had already been resolved in the State Action in Smith’s favor.

The District Court agreed.  Applying Maryland law concerning res judicata, the Court found that (a) the parties in the Federal Action were the same or in privity with the parties in the State action, (b) the claims presented in the Federal Action were the same as those presented in the State Action, and (c) there was a final judgment in the State Action.  The takeaway from all this is that litigants should never assume that they will have another chance to prosecute their claims once those claims (and more importantly, the factual predicates to those claims) have been raised.  Once Cognate counterclaimed against Smith in state court, it rolled the dice in that forum and was bound by the results.

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