Camouflaged Collateral Estoppel

One challenge of trial work is trying to anticipate beforehand every issue that might arise once the parties are in the courtroom. Discovery greatly reduces the incidence of surprises of fact, but it can’t protect against surprises of law — foreseeable legal arguments that lurk undetected, camouflaged by the obvious issues absorbing everyone’s attention, until they come leaping from hiding in the course of trial. The Eighth Circuit recently decided a question of preclusion that appears to have ambushed the judge and the attorneys who tried the case in this way. Two sets of plaintiffs represented by the same law firm brought factually almost-identical but legally distinct claims against the same defendant.  The claims were tried together, with the judge to decide one set of claims and the jury to decide the other.  When the jury reached its verdict first, a camouflaged legal issue reared its head, and the parties found themselves embroiled in a dispute whether the jury’s verdict should bind the judge based on the doctrine of collateral estoppel (issue preclusion), or whether the judge was free to reach a verdict inconsistent with the jury’s decision.

In Blue Cross Blue Shield et. al v. Wells Fargo Bank, a group of employee benefit plan administrators sued Wells Fargo Bank for breach of fiduciary duty, alleging improper and imprudent investments by Wells Fargo that caused the plaintiffs to lose money. Some of the plaintiffs’ claims were subject to the Employee Retirement Income Security Act (ERISA). Other plaintiffs brought state common law claims not subject to ERISA but alleging the same kinds of misconduct by Wells Fargo. Both sets of plaintiffs were represented by the same law firm.[1]

The state common-law plaintiffs had a right to a jury trial, which they asserted, but there is no right to a jury trial for ERISA claims.[2] Thus even though the testimony of the experts and the Wells Fargo employees would be the same for all the plaintiffs, and even though the parties agreed that Wells Fargo’s fiduciary duties were “virtually identical” for both sets of plaintiffs, some of the plaintiffs’ claims had to be decided by a jury and others by the judge.[3]

Both sets of claims, ERISA and state common law, were tried together. When the parties finished presenting evidence related to the state common law claims, the jury left the courtroom to begin deliberating, while the judge continued the trial to receive evidence specific to the ERISA claims. Before the ERISA bench trial portion of the proceeding concluded, the jury returned its verdict on the state common law claims, deciding that Wells Fargo had not breached its fiduciary duty with respect to any of the state common law plaintiffs.[4]

Wells Fargo seized the opening presented and argued that in light of the jury’s verdict, collateral estoppel[5] required a verdict in favor of Wells Fargo on the ERISA claims as well – that the jury’s finding of fact that Wells Fargo had not breached its fiduciary duty toward the state common law plaintiffs conclusively determined that Wells Fargo had not breached its fiduciary duty toward the ERISA plaintiffs either. The district court agreed, and dismissed the ERISA claims with prejudice.

The district court’s Memorandum and Order explained,

[T]he Court proceeded under the view and under the assumption that the parties had, in their trial plan, either stipulated away the preclusive effect of a jury verdict or, perhaps with the benefit of hindsight, did not contemplate the effect of the jury verdict one way or the other, nor did the Court inquire of counsel during the pretrial on this issue. However, on the unique facts of this case, the Court need not decide whether and under what circumstances the issues of preclusion can be waived. . . . Thus, given the presence of the issue of preclusion under the unique facts of this case, neither consent nor waiver can be appropriately invoked here where the court is bound by the decision of the jury, given the following unique circumstances: (1) the same law firm represented all plaintiffs;(2) there was practical privity between the ERISA and nonERISA Plaintiffs; (3) the issues were in fact identical . . . [6]

It appears that when the court and the parties agreed to the plan to try both sets of claims (the ERISA/bench trial claims and the state common law/jury trial claims) at the same time, they did not resolve the question of whether the decision on one set of claims would necessarily resolve the other set of claims through collateral estoppel. It may be that the likelihood this issue would arise simply did not occur to the court or to counsel. Or, crediting the attorneys with foresight, perhaps counsel on each side strategically chose to ignore the collateral estoppel issue prior to trial, to keep their options open so that they could later argue for or against collateral estoppel depending on how the first verdict came out.

In any event, Wells Fargo won the first verdict, so Wells Fargo took the position that collateral estoppel did apply, and the ERISA plaintiffs argued that the simultaneous trial meant Wells Fargo had waived the right to rely on collateral estoppel. The district court agreed with Wells Fargo. Though the district court’s order was not completely clear, the court apparently concluded that under the circumstances the factors supporting collateral estoppel were so strong that it did not need to decide whether Wells Fargo had waived its right to assert collateral estoppel.

The ERISA plaintiffs took the argument to the Eighth Circuit, where they found sympathetic ears. The appellate panel decided (1) waiver of the right to assert collateral estoppel is possible and (2) because the two sets of plaintiffs brought different sets of claims (common law claims and ERISA/equitable claims), it was not essential to strictly adhere to the general principle that factual findings should be consistent between judge and jury in a single trial.[7] Therefore, the Eighth Circuit concluded the district court should have decided whether the parties waived collateral estoppel by adopting the trial plan to try both sets of claims at the same time, instead of declining to reach that issue. The case was remanded.

Blue Cross simultaneously highlights the power of a collateral estoppel argument (it can resolve claims without a decision on the merits by the court) and the potential danger of relying on collateral estoppel (since a party may waive its right to assert collateral estoppel through a course of action, without expressly agreeing to waive). From a practice perspective, the case also shows how the demands of trial work can cause issues that seem obvious in retrospect[8] to get lost in the shuffle, whether by the intention of the parties or accidentally.

[1] Blue Cross Blue Shield of Minnesota et. al v. Wells Fargo Bank, N.A., no. 14-3457 (8th Cir. March 22, 2016).

[2] See Wengert v. Rajendran, no. 15cv366 (D. Neb. Mar. 2, 2016) at 4-5 (citing In re Vorpahl, 695 F.2d 318 (8th Cir. 1982)).

[3] Blue Cross Blue Shield, no. 14-3457, at 3-4.

[4] Id. at 4

[5] In comprehensible terms, collateral estoppel (also called “issue preclusion”) means that once a judge or jury decides a question of fact in a dispute between two parties, the issue is settled and the same parties may not later seek to obtain a different decision on the same question of fact. Stated formally, collateral estoppel is the rule that “[w]hen an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.” Turner v. U.S. Dep’t of Justice, 815 F.3d 1108, 1111 (8th Cir. 2016) (quoting Restatement (Second) of Judgments § 27 (Am. Law Inst. 1982)).

[6] Blue Cross Blue Shield, no. 14-3457, at 5.

[7] Id. at 7-8.

[8] If a court is trying two sets of essentially identical claims against the same defendant at the same time, aren’t beneficiaries of the first verdict obviously going to argue collateral estoppel with respect to the second verdict? Shouldn’t the court and the parties make clear at the outset whether collateral estoppel will apply — before the parties know whether they will win or lose if it does — to save everyone the trouble of fighting the issue out later and an appeal that could easily have been prevented? Perhaps; but these things often look much clearer in hindsight, and there may have been other considerations during the trial that made the course chosen the better one.

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