Federal Ins. Co. v. Gates Learjet Corp.

• Decision Date: 30 June 1987
• Docket Number: No. 84-1904,84-1904
• Citation: 823 F.2d 383
• Parties: FEDERAL INSURANCE COMPANY, Plaintiff-Appellee, v. GATES LEARJET CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 383

823 F.2d 383

8 Fed.R.Serv.3d 414

FEDERAL INSURANCE COMPANY, Plaintiff-Appellee, v. GATES LEARJET CORPORATION, Defendant-Appellant.

No. 84-1904.

United States Court of Appeals, Tenth Circuit.

June 30, 1987.

Rehearing Denied Sept. 2, 1987.

Stephen P. Kenney, of Lord, Bissell & Brook, Chicago, Ill. (Hugh C. Griffin and Margie L. Petersen of Lord, Bissell & Brook, Chicago, Ill., and Richard C. Hite and Scott J. Gunderson, of Kahrs, Nelson, Fanning, Hite & Kellogg, of Wichita, Kan., with him on briefs), for defendant-appellant.

Roger W. Penner, of Dysart, Taylor, Penner & Lay, P.C., Kansas City, Mo. (Robert W. Cotter, of Dysart, Taylor, Penner & Lay, P.C., Kansas City, Mo., and N. Jack Brown, of Boddington & Brown, Kansas City, Kan., with him on briefs), for plaintiff-appellee.

Before BARRETT, ANDERSON and TACHA, Circuit Judges.

TACHA, Circuit Judge.

This diversity case arises from the crash of a jet manufactured by Gates Learjet Corporation (Gates). The crash resulted in the destruction of the aircraft and the deaths of the five occupants: the owner of the jet and his wife, a business associate of the owner, the pilot and the co-pilot. Federal Insurance Company (Federal) insured the jet for physical damage and, after paying the insured value to the owner's estate, filed this subrogation action in federal district court in Kansas.

Wrongful death actions were filed against Gates in federal district court in Georgia on behalf of the business associate and in state court in Michigan on behalf of all the occupants of the jet. The wrongful death actions proceeded to trial and the juries returned verdicts for the plaintiffs. The cases were settled pending appeal.

Following the conclusion of the wrongful death actions, Federal moved for partial summary judgment in the present case on the issue of liability. Federal relied on the results of the wrongful death litigation in Georgia and Michigan in claiming that offensive collateral estoppel should prevent Gates from litigating the liability issue in the present case. The district court granted Federal's motion for partial summary judgment, and denied Gates' motion to add a statute of limitations defense. We reverse the district court's grant of partial summary judgment allowing offensive use of collateral estoppel and affirm the district court's denial of the motion to add a statute of limitations defense.

I.

A.

In granting Federal's motion for partial summary judgment, the district court apparently relied primarily on the Michigan litigation but considered Kansas, California and federal law to determine its collateral estoppel effect. We find that the district court erred in failing to apply Michigan law to determine the collateral estoppel effect of the Michigan litigation. The Full Faith and Credit Statute, 28 U.S.C. Sec. 1738, requires a federal court to apply the law of the state rendering the judgment to determine collateral estoppel effect. Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985); Kremer v. Chemical Constr. Corp., 456 U.S. 461, 102 S.Ct. 1883, 72 L.Ed.2d 262 (1982). Furthermore, according to the Marrese decision, a federal court cannot give greater preclusive effect to a state court judgment than would the state rendering the judgment. 470 U.S. at 380, 105 S.Ct. at 1331; Kiowa Tribe v. Lewis, 777 F.2d 587, 590 (10th Cir.1985), cert. denied, --- U.S. ----, 107 S.Ct. 247, 93 L.Ed.2d 171 (1986). Therefore, the district court should have applied Michigan law to determine whether the principle of collateral estoppel could be used to preclude Gates from litigating the liability issue in the present case.

Under Michigan law, Federal cannot use collateral estoppel offensively to preclude Gates from litigating the liability issue. Collateral estoppel applies only where there is mutuality of estoppel. Howell v. Vito's Trucking and Excavating Co., 386 Mich. 37, 42-43, 191 N.W.2d 313, 315-16 (1971). Mutuality exists if the party attempting to take advantage of an earlier favorable judgment would have been bound by the judgment had it been adverse. Id. A judgment will not bind a non-party except when the non-party is in privity with one who was a party to the first suit. Id. Because Federal was not a party to the previous suits, mutuality will exist only if Federal is in privity with a party to those suits.

According to Michigan law, a privy is one who after judgment acquires an interest in the subject matter affected by the judgment through a party, as by inheritance, succession, or purchase. Howell, 386 Mich. at 43, 191 N.W.2d at 316; Eliason Corp. v. Bureau of Safety and Regulation, 564 F.Supp. 1298, 1305 (W.D.Mich.1983). In the present case, Federal is subrogated to the rights of the jet's owner to the extent of the insured value of the aircraft. However, Federal's status as subrogor does not make Federal a privy of the owner's estate because Federal's interest is different from the subject matter of the Michigan litigation; the owner's wrongful death claim is distinct from Federal's damage claim. Absent privity between Federal and Gates, Federal would not be bound if the Michigan judgment had gone against the owner. Because the necessary element of mutuality is absent, Federal cannot use collateral estoppel based on the Michigan litigation to prevent Gates from litigating the liability issue in the present case.

B.

The district court also apparently relied on the Georgia litigation in allowing use of collateral estoppel; the court found that it was fair to apply collateral estoppel because Gates had two opportunities to litigate liability. Because the Georgia suit took place in federal court, our analysis of its preclusive effect differs from the analysis of the effect of the Michigan litigation, which was in state court.

In Hayles v. Randall Motor Co., 455 F.2d 169, 173 (10th Cir.1971), we stated that a federal court sitting in diversity applies state law in determining the collateral estoppel effect of a prior federal court diversity judgment. We note that this statement cannot be regarded as strong authority for this position because the question as to whether state or federal law governs in determining the preclusive effect of the prior judgment was apparently not at issue in Hayles. We nevertheless follow this precedent because there are compelling reasons for doing so in this case. ¹

In Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), the Court held that substantive rights should not vary depending on whether a state cause of action is litigated in state court or in federal court under diversity jurisdiction. It is not consistent with this mandate for federal courts sitting in diversity to create their own body of law distinguishing them from state courts. Giving federal district court judgments greater preclusive effect than state court judgments might cause forum-shopping, a concern of the Court in Erie. Id. at 74-75, 58 S.Ct. at 820. On the other hand, a federal court does have an interest in determining the effect of its own judgments. See, e.g., Aerojet-General Corp. v. Askew, 511 F.2d 710, 716-17 (5th Cir.), cert. denied, 423 U.S. 908, 96 S.Ct. 210, 46 L.Ed.2d 137 (1975); Kern v. Hettinger, 303 F.2d 333, 340 (2d Cir.1962).

We do not announce a broad rule regarding whether state law or federal law should determine the preclusive effect of a federal diversity court judgment. In this case, where the question is whether there is privity between the parties in different diversity suits, a federal court must employ state rules of privity. We agree that "the concept of 'privity' in res judicata doctrine reflects a distinctly substantive policy, because privity arises from 'considerations going to stability of legal relationships--not unlike definitions of property.' " Spiker v. Capitol Milk Producers Coop., Inc., 577 F.Supp. 416, 418 (W.D.Va.1983) (quoting Restatement (Second) of Judgments Sec. 87 comment b (1980)); accord 18 C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure Sec. 4472 (Supp.1986) (state law should determine whether there is privity between the parties in federal diversity suits).

Thus, in the present case, we apply Georgia law to determine the collateral estoppel effect of the Georgia federal court litigation. Like Michigan, Georgia requires mutuality. Norris v. Atlanta & West Point R.R. Co., 254 Ga. 684, 684, 333 S.E.2d 835, 837 (1985). The jet owner's business associate was the only plaintiff in the Georgia litigation. Federal's status as subrogor does not make Federal a privy of the jet owner's business associate because Federal's damage claim is different from the Georgia plaintiff's wrongful death claim. Since...