Home Owners Federal Savings & Loan Ass'n v. Northwestern Fire & Marine Insurance

Kirk, J.

(dissenting). The majority state an abstract proposition of law which is sound: A party not privy to a prior judgment may, by way of collateral estoppel, use that judgment defensively against a party who was a plaintiff in the action which led to the prior judgment. The proposition, however, has no application to the case before us since the prior judgment was predicated on an issue different from the issue presented for determination in the second case. I disagree with the opinion and feel obliged to state my reasons.

1. In the first case, the trial judge found that the policy was in effect. His final decision for the Home Insurance Company, however, was directly based on his finding that the Bank had not complied with policy provisions relating to notice of loss. In the present case, the trial judge denied request No. 20. This implies that he found or ruled that the decision in the first case did not depend on whether the policies were in effect. The majority deal with the denial of request No. 20 by saying that the finding of the judge in the first case (that the policy was in effect) “was treated as essential to the case by the party [the Bank] to be bound and by the court.” However that may be, it is clear that the Bank lost the first case on the basis of the judge’s finding that the Bank had not complied with the provisions of the *458 policy relating to notice of loss. If the judge had not made the latter finding the Bank would have won the first case. The nonessential nature of the finding that the policy had not been cancelled is demonstrable: It was not the basis of the denial of relief to the Bank. It was not the basis of the granting of relief to Home Insurance Company. It was not the basis for establishing any other ultimate right of the parties to the litigation. These negative meanings of the finding that the policy had not been cancelled bring the result of the first case squarely within the rule stated by Lummus, J., in Cambria v. Jeffery, 307 Mass. 49 , 50: “A fact merely found in a case becomes adjudicated only when it is shown to have been a basis of the relief, denial of relief, or other ultimate right established by the judgment” (emphasis supplied).

This rule, that a finding of fact which is not necessary to the earlier judgment does not bar (by the principle of collateral estoppel) subsequent litigation of the issue of fact, has long been established in this Commonwealth and is generally followed elsewhere. Minor v. Walter, 17 Mass. 236, 237 . Cambria v. Jeffery, 307 Mass. 49, 50 , and cases cited. Wayland v. Lee, 325 Mass. 637, 641 . Henchey v. Cox, 348 Mass. 742, 746-747 . Guardianship of Leach, 30 Cal. 2d 297, 310-311 . Venetsanos v. Pappas, 21 Del. Ch. 177 . Stokes v. Stokes, 155 N. Y. 581, 592 . City Bank Farmers Trust v. MacFadden, 13 App. Div. 2d N. Y. 395, 401. Hardin v. Clark, 32 S. C. 480, 491. Additional cases are collected in Annotation, 133 A. L. R. 840; Restatement: Judgments, § 68; 2 Freeman, Judgments, § 697; James, Civil Procedure, § 11.21. Cf. Developments in the Law — Res Judicata, 65 Harv. L. Rev. 818 , 846. The decisions cited in the majority opinion dealing with collateral estoppel are wholly consistent with these authorities. It appears from each of them that the fact or facts relied upon for the estoppel were themselves the basis of the adjudication at the earlier trial. This essential requirement for collateral estoppel is not met, however, in the case before us.

This court has never questioned the wisdom or the prac *459 ticability of the rule stated in Cambria v. Jeffery, 307 Mass. 49, 50 . On the contrary, the case has been cited and followed in recent decisions (Henchey v. Cox, 348 Mass. 742, 747 ), is to be found in Restatement: Judgments, § 68 Comment o, Illus: 10, and is discussed with approval in James, Civil Procedure, § 11.21. It now appears that the majority have overruled the Cambria case without discussion.

2. Substantial rights may be lost under the majority holding. A plaintiff confronting a situation affording different, independent and perhaps inconsistent theories of recovery involving more than one defendant, being unsure of the facts which may develop at the trial or unable to foretell with certainty the applicable law, must, nevertheless, make an election which may prove to be binding. He must decide to pursue one theory of recovery against one defendant, with the knowledge that his right of action against another defendant on another cause of action may be foreclosed by a finding incidental to the result of the first case. As the present case illustrates, he is also at the mercy of his adversary, whose tactics will change with the shifting winds of trial, as to what that incidental finding will be. The outcome of at least two of the issues in the first case was largely in the hands of the Bank’s adversary, Home Insurance Company. Home pleaded noncompliance with the notice provision and had the burden of proving it. Home successfully proved noncompliance and on that basis won its judgment. Home also pleaded cancellation of the policy and had the burden of proving it. Home failed to prove cancellation but its failure did not affect the judgment. Nevertheless, under the opinion, Home’s failure as defendant to prove cancellation in the first case is held now to bar the Bank as plaintiff from attempting to prove cancellation in the present action against Northwestern. Home’s failure to prove cancellation may have been due to any number of reasons, including, for example, inadequate investigation, or disinclination to belabor the cancellation issue in light of the strong evidence in its favor on the notice issue. In this setting Home’s failure to prove cancellation in the first case *460 should not be used to estop the Bank from proving cancellation against another defendant (Northwestern) in the second case where the burden of the issue rests with the Bank. The majority so hold, however, despite the Bank’s demonstrated success in proving cancellation in the case now under review. The majority’s reference to the “strong and oft-stated public policy of limiting each litigant to one opportunity to try his case on the merits,” means, I must assume, one “full and fair opportunity to litigate . . . [an] issue effectively.” (See Currie, Mutuality of Collateral Estoppel: Limits of the Bernhard Doctrine, 9 Stan. L. Rev. 281 , 308.) It is my view on this record that the Bank did not have that opportunity in the first case, that it did have that opportunity in the second case, but the fruits of victory in the second case have been snatched from it by the maj ority opinion.

3. Other relevant considerations which need not be fully developed in a dissent should nevertheless be mentioned, (a) The majority’s holding precludes the Bank or any party in a similar position from ever getting appellate review of the issue of cancellation of the policy. Under our practice it could not get a review of that issue in the first case because the finding (1) was not harmful to the Bank in that case and (2) did not tend to support the ultimate finding against the Bank in that case. It is denied appellate review of that issue in the second case because the majority hold that the issue was finally determined by the incidental finding made by the judge in the first case. “Full and fair opportunity to litigate an issue effectively” is denied where there is no opportunity for review. That is the situation here. The majority dispose of this serious problem with the comment, “We need not concern ourselves with problems of obtaining appellate review of findings not absolutely essential to a final judgment since the finding relied upon here was contended for and entirely favorable (in the case in which it was made) to the party to be bound thereby.” Because this comment is based solely on the assertion that the Bank did not try to prove a proposition contended for by its opponent in the first case, I do not share the majority’s lack of concern with *461 the problem of appellate review, (b) The majority holding will gravely affect judicial administration. There is the very real prospect that litigants, in order to exploit or in order to avoid the consequences of the majority holding, henceforth will feel obliged to explore and fully litigate issues which heretofore they seldom have had reason or opportunity to be specially concerned with. To safeguard a litigant’s rights and fulfill his professional duty counsel may feel obliged to ask for, and judges may well be under a duty to make, findings of fact which are not decisive of the case being tried. Juries will be asked to answer special questions. The role of the pretrial judge will change if not disappear. Greater court congestion, longer delay and heavier expense to the parties and to the public would seem to be inevitable.

I submit that the judge was entirely right in denying request No. 20, that the exception should be overruled and that the merits of the other exceptions should be examined.