Kaspar Wire Works, Inc. v. Leco Engineering & Mach., Inc.

Decision Date21 June 1978
Docket NumberNo. 76-2001,76-2001
Citation575 F.2d 530,198 USPQ 513
PartiesKASPAR WIRE WORKS, INC., et al., Plaintiffs-Appellants, v. LECO ENGINEERING AND MACHINE, INC., et al., Defendants-Appellees.
CourtU.S. Court of Appeals — Fifth Circuit

Stefan M. Stein, Tampa, Fla., for plaintiffs-appellants.

Norman H. Stepno, Arlington, Va., James P. O'Shaughnessy, Cleveland, Ohio, for defendants-appellees.

Appeal from the United States District Court for the Middle District of Florida.

Before GOLDBERG, HILL and RUBIN, Circuit Judges.

ALVIN B. RUBIN, Circuit Judge:

This patent infringement case, involving a type of latch used on coin-operated newspaper vending machines commonly found on street corners, is the third suit relating to the validity of patented devices embodied in the respective products of two competitors. The trial court held that a consent judgment dismissing a prior suit brought for a declaratory judgment of patent invalidity and non-infringement did not bar or estop the defendants from contesting the validity of the plaintiff's patent in this suit; it then held the patent invalid for obviousness. Because the court's conclusion with respect to the dismissal of the earlier suit was correct, and the conclusion as to patent validity is supported by the evidence, we affirm. 1

I. The Facts

Kaspar, 2 the plaintiff, and Leco, 3 the defendant, have been competitors for more than ten years. Kaspar first sued Leco for infringement of another patent, number 177. 4 Leco then began a suit against Kaspar, seeking a declaratory judgment that patent 608 5 was invalid. After trial of the first suit, but before judgment in it became final, Kaspar and Leco agreed to settle Suit No. 1. Part of their agreement was that Leco would dismiss Suit No. 2. This was accomplished in April, 1973.

A year later, Kaspar filed this suit, the third court entry, against Leco for infringement of Patent 608. Admitting that if Patent 608 were valid it had committed infringement, Leco rested its defense on patent invalidity. Kaspar contended that the earlier decree dismissing Suit No. 2 was res judicata as to the validity of Patent 608, or, if not, that it collaterally estopped Leco from attacking the validity of that patent. 6 Finally, it asserted the validity of the patent.

The parties' consent to the entry of judgment in Suit No. 1 referred to the dismissal of Suit No. 2 simply as "with prejudice" and the judgment in Suit No. 2, the declaratory proceeding, stated only that it was dismissed "with prejudice." In discussing their agreement with the court in Suit No. 1 (the suit in which agreement was reached), the following statement was made to the court by counsel for Leco . . . I'd like also to put on the record the discussion we had with regard to the declaratory judgment action (Suit Number 2), so there is no it is with prejudice, which means that we will not bring a declaratory judgment action against Kaspar or Knickerbocker on their patent; but that, should we be sued, we are free to challenge validity.

It is thus apparent that the parties did not stipulate to the validity of Patent 608 or its infringement by Leco. However, more than one year having elapsed, it is now too late, under the provisions of Rule 60(b), Federal Rules of Civil Procedure, to amend the judgment of dismissal with prejudice. We need not consider whether a separate action to relieve Leco from it under the next-to-last sentence of that rule, the full text of which is set forth in the footnote, 7 would lie, for that issue is not before us. But we must here consider both the effect of the consent judgment as preclusive of Leco's right now to contest the validity of Patent 608, and its effect with respect to damages that may have been incurred by infringement of the patent prior to entry of judgment.

II. Res Judicata

As the factual account indicates, the judgment that is contended to have preclusive effect was entered as a consent decree in a declaratory judgment proceeding involving a question of alleged patent invalidity. We must examine the significance of each ingredient in this mix in turn.

Kaspar urges that the dismissal of Leco's declaratory action "with prejudice" must be deemed a final adjudication of the merits of Leco's "claim" of patent invalidity, thus precluding Leco here from relitigating its "claim." In a conventional suit for common law or equitable relief:

It is clear that a stipulation of dismissal with prejudice, or, for that matter, a dismissal with prejudice at any stage of a judicial proceeding, normally constitutes a final judgment on the merits which bars a later suit on the same cause of action. Burns v. Fincke, 1952, 90 U.S.App.D.C. 381, 197 F.2d 165, 166; 1B Moore, Federal Practice P 0.409(1), p. 1008 (2d ed. 1965). See also Lawlor v. National Screen Service Corporation, 349 U.S. 322, 75 S.Ct. 865, 99 L.Ed. 1122 (1955); Smoot v. Fox, 6 Cir., 1964, 340 F.2d 301; Cleveland v. Higgins, 2 Cir., 1945, 148 F.2d 722.

Astron Industrial Associates, Inc. v. Chrysler Motors Corp., 5 Cir. 1968, 405 F.2d 958, 960; Weissinger v. United States, 5 Cir. 1970, 423 F.2d 795. Indeed, under Federal Rule of Civil Procedure 41(b), a judgment of dismissal usually has the effect of an adjudication on the merits even when the court's order fails to state whether it is with or without prejudice.

Under the Declaratory Judgments Act, 28 U.S.C. § 2201, however, familiar principles of res judicata cannot be applied automatically to judgments dismissing suits for declaratory relief without stated reasons. The first section of the Act states:

In a case of actual controversy within its jurisdiction . . ., any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

(Emphasis supplied.) This statute, literally read, does not accord every judgment in a declaratory suit the "force and effect of a final judgment," but gives that import only to "(a)ny such declaration" (emphasis supplied), that is, any judgment that by its terms states the relations of the parties with respect to the issue in question. It may be that an unadorned dismissal with prejudice should be construed as a declaration that the declaratory plaintiff was not entitled to the statement of rights he sought; however, a contrary conclusion is suggested by the words of the statute and is buttressed by an analysis of the rules of res judicata 8 when the dismissal is a consent decree.

The rules of res judicata, as the term is sometimes sweepingly used, actually comprise two doctrines concerning the preclusive effect of a prior adjudication. The first such doctrine is "claim preclusion," or true res judicata. It treats a judgment, once rendered, as the full measure of relief to be accorded between the same parties on the same "claim" or "cause of action." Sea-Land Services, Inc. v. Gaudet, 1974, 414 U.S. 573, 578-79, 94 S.Ct. 806, 39 L.Ed.2d 9, 17-18. See also discussion in Restatement Second of Judgments, p. 1 and § 47 (Tent. Draft No. 1, 1973). When the plaintiff obtains a judgment in his favor, his claim "merges" in the judgment; he may seek no further relief on that claim in a separate action. Conversely, when a judgment is rendered for a defendant, the plaintiff's claim is extinguished; the judgment then acts as a "bar." Angel v. Bullington, 1947, 330 U.S. 183, 67 S.Ct. 657, 91 L.Ed. 832. Cf. Cleckner v. Republic Van and Storage Co., 5 Cir. 1977, 556 F.2d 766. See also discussion in Restatement Second of Judgments, p. 1 and § 48 (Tent. Draft No. 1, 1973). Under these rules of claim preclusion, the effect of a judgment extends to the litigation of all issues relevant to the same claim between the same parties, whether or not raised at trial. Garner v. Giarrusso, 5 Cir. 1978, 571 F.2d 1330 (1978); International Assoc. of Machinists & Aerospace Workers v. Nix, 5 Cir. 1975, 512 F.2d 125, 131; Blanchard v. St. Paul Fire and Marine Ins. Co., 5 Cir. 1965, 341 F.2d 351, 359. See also Restatement Second of Judgments, §§ 47(b) and 48 comment a (Tent. Draft No. 1, 1973). The aim of claim preclusion is thus to avoid multiple suits on identical entitlements or obligations between the same parties, accompanied, as they would be, by the redetermination of identical issues of duty and breach.

The second doctrine, collateral estoppel or "issue preclusion," recognizes that suits addressed to particular claims may present issues relevant to suits on other claims. 9 In order to effectuate the public policy in favor of minimizing redundant litigation, issue preclusion bars the relitigation of issues actually adjudicated, and essential to the judgment, in a prior litigation between the same parties. Harris v. Washington, 1971, 404 U.S. 55, 92 S.Ct. 183, 30 L.Ed.2d 212. See also Restatement of Judgments, § 68 and Restatement Second of Judgments, § 45(c) (Tent. Draft No. 1, 1973). It is insufficient for the invocation of issue preclusion that some question of fact or law in a later suit was relevant to a prior adjudication between the parties; the contested issue must have been litigated and necessary to the judgment earlier rendered. 10

a. Claim Preclusion

As this case aptly demonstrates, the rules of claim preclusion are difficult, if not impossible, to apply in the usual form when a declaratory judgment proceeding ends in a judgment that states no more than "dismissed with prejudice." Further, as the Declaratory Judgments Act indicates, claim preclusion may be inappropriate given the purposeful supplementary nature of declaratory relief.

To illustrate these points, we may begin by considering how traditional claim preclusion analysis might be applied to Leco's suit against Kaspar. One way of understanding Kaspar's argument in this...

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