Opposition Brief — Horn & Hardart Co. v. National Railroad Passenger Corp.

Supreme Court, WS

EI LED

AUG 8 1988

SPAMOL, ai

‘

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No. 88-30

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

THE HoRN & HARDART COMPANY,

Petitioner,

v.

NATIONAL RAILROAD PASSENGER CORPORATION,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

RESPONDENT'S BRIEF IN OPPOSITION

CHARLES F. LETTOW *

MATTHEW D. SLATER

MICHAEL J. SUSSMAN

CLEARY, GOTTLIEB,

STEEN & HAMILTON

1752 N Street, N.W.

Washington, D.C. 20036

(202) 728-2700

* Counsel of Record Counsel for Respondent

August 8, 1988

a =

WILSON - EPEs PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

QUESTIONS PRESENTED

1. Whether the Court of Appeals correctly concluded

that a prior appeal upholding a declaratory judgment did

not prevent the District Court from exercising jurisdiction

over a motion for further relief filed by defendant-

respondent under the Declaratory Judgment Act, 28

U.S.C. $$ 2201, 2202, based on that declaratory judgment?

2. Whether the Court of Appeals correctly concluded

that the relief granted by the District Court constitutes

proper “further relief” within the meaning of 28 U.S.C.

§ 2202?

3. Whether the Court of Appeals correctly determined

that further relief was not barred by the doctrine of res

judicata?

(i)

il

PARTIES TO THE PROCEEDINGS

The parties to the proceedings are set forth in the pe-

tition for writ of certiorari in this case. Pursuant to

S. Ct. Rule 28.1, respondent states that it has no publicly-

owned parents, subsidiaries, or affiliates.

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED _.. 7 i

PARTIES TO THE PROCEEDINGS... ii

Sg 8) gd | iv

OPINIONS BELOW .... Ne ease. ane 1

Neen ee eT en. sccacsuncelcccussensecece 2

STATUTES ............ eae eo arches civwens aL See Pp 2

Daeeeueemeee Gee eee, CASE ........................................ 2

REASONS FOR DENYING THE WRIT. weet 5

I. The District Court Properly Exercised Jurisdic-

ean a STARE A 6

II. Relief Was Properly Granted Under 28 U.S.C.

en Set St OC : 11

III. The Doctrine of Res Judicata Does Not Bar Am-

Ne os ccacennansaceces oe: 15

CONCLUSION ........... Sei = 21

Appendix of Excerpts from the Restatement (Second)

of Judgments ............ 1 JR a Pr hess la

(iii)

iv

TABLE OF AUTHORITIES

Cases: Page

Aetna Casualty & Surety Co. v. Quarles, 92 F.2d

SE CO Ge FI ons tedacsicteereneis cities ees 15

Aetna Life Insurance Co. v. Haworth, 300 U.S. 227

CI bane vars racine acct tucsieneetintanasectaiennos 10

Alevander & Alexander, Inc. v. Van Impe, 787 F.2d

BE UI Ge, ee cinders eenancredinteoeceas 12

Banco Nacional de Cuba v. Farr, 383 F.2d 166 (24

Cir. 1967), cert. denied, 390 U.S. 956 (1968) . x

Bankers Trust Co. v. Bethlehem Steel Corp., 761

F.2d 943 (3d Cir. 1985) _....... Rae as te te leds ee 8

Resler v. U.S. Department of Agriculture, 639 F.2d

SER Cas: Ge. Re eects... 11

Brigas v. Pennsylvania Railroad Co. 334 U. S. 304

PRI son d cccrsccetatlncnnccecsaatadeohadnanaeees 7

Central States, Southeast & Southwest Areas Pen-

sion Fund v. Commercial Cartage Co., No. 86C

3268, slip op. (N.D. Ill. Apr. 24, 1987) -................ 17

County Fuel Co. v. Equitable Bank Corp., 332 F.2d

SR Ee Ee: oe eerie _ 16,17

County of Cook v. Midcon Corp., 773 F.2d 892

I es te cin endiiinrisionn stncnesetaranansetiasecotnnins 17

Doe v. Gallinot, 687 F.2d 1017 (9th Cir. 1981) . 14

Edward B. Marks Music Corp. v. Charles K. Harris

Music Publishing Co., 255 F.2d 518 (2d Cir.

1958), cert. denied, 358 U.S. 831 (1958) ..__....6, 12, 13

Griggs v. Provident Consumer Discount Co., 459

ee a oe aheeer seameuoaseeens 7

Henry v. Farmer City State Bank, 808 F.2d 1228

Pn 6 so ee eee 8, 9,17

Kaspar Wire Works, Inc. v. Leco Engineering &

Machine, Ine., 575 F.2d 530 (5th Cir. 1978) —...... 19

Kyle Enaineering Co. v. Kleppe, 600 F.2d 226 (9th

UE: ies ee 9

Lawhorn v. Atlantie Refining Co., 299 F.2d 353

Fa a. Se coe a ep nteacenecnnels 17, 20

Martino ». McDonald’s System, Ine., 598 F.2d 1079

(7th Cir.), cert. denied, 441 U.S. 966 (1979) - 17

McCann v. Kerner, 436 F.2d 1342 (7th Cir. 1971)

CU IN: iinet nvtsetetentin pitacpatoniomsdnacatncnncadacionse 12

a a a ee

y

TABLE OF AUTHORITIES—Continued

Page

McNally v. American States Ins. Co., 339 F.2d 186

RI. I hse a a Fa 10

Montana v. United States, 440 U.S. 147 (1979). 19

National Railroad Passenger Corp. v. The Horn &

Hardart Co., L and T Index Nos. 3687685,

36877/85, 36878/85 (N.Y. Civ. Ct., part 52)

(consolidated) 0.000.000... Siacabishatededideitident eee 4

National Research Bureau, Ine. , Bartholomew,

482 F.2d 386 (3d Cir. 1973) _........... )

National Union Fire Ins. Co. of Pittsburgh, PA: ”,

Jett, 118 F.R.D. 336 (S.D.N.Y. 1988) 17, 20

Oklahoma Alcoholic Beverage Control Bd. v. Cen-

tral Liquor Co., 421 P.2d 244 (Okla. 1966) . 14

Overnite Transportation Co. v. Chicago Industrial

Tire Co., 697 F.2d 789 (7th Cir. 1983) . ame 9

Potter v. Carvel Stores of New York, Inc., 202 F.

Supp. 462 (D. Md. 1962), aff'd, 314 F.2d 45 (4th

| eRe eR Oe, ELSIE et HANS RAE sereseernct ANCOR 17

Powell v. McCormack, 395 U.S. 486 (1969) . 12

Quern v. Jordan, 440 U.S. 332 (1979)... 8

Rincon Band of Mission Indians v. Harris, 618 F. 2d

569 (9th Cir. 1980) . ineeese Ku ow

Rudell v. Comprehensive Aeceustinn Core. 802

F.2d 926 (7th Cir. 1986), cert. denied, 107 S. Ct.

Es SNL et ee aT TI 17

Sakezzie v. Utah State Indian Affairs Comm’n, 215 )

F. Supp. 12 (D. Utah 1963) 12

Skelly Oil Co. v. Phillips Petroleum Co., 339 U. s.

NE WOO onde See oe ne 10

Sprague v. Ticonie National Bank, 307 U.S. 16]

(1939) . wah as 9

Stephenson v. . Equitable Life Assur. ‘Soc’y y, 92 F. 2d

EE TE I IEE aint csi bce ieee 15

Switzer Brothers, Inc. v. Chicago Cardboard Co.

252 F.2d 407 (7th Cir. 1958) - 9

Teas v. Twentieth Century-Fox Film Corp., 413

F.2d 1263 (5th Cir. eo rr elN 1

United States v. Snider, 779 F.2d 1151 (6th Cir.

| See tin (hacaiae can CE Ae RS ON BEL W ION, 17

vi

TABLE OF AUTHORITIES—Continued

I age

United States v. Thompson, 262 F. Supp. 310 (S.D.

Tex. 1966) 17

Windmoller v. Laquerre, 281 F. Supp. 568 (D.D.C.

1968) 10

Statutes and Rules:

28 U.S.C. § 1254 (1) 2

28 U.S.C. § 13832 (a) (1) 2,7, 10

28 U.S.C. § 2201 2, 10,11

28 U.S.C. § 2202 passim

15 U.S.C. § 54 6(m) 7

Fed. R. Civ. P. 7 (a) 16

Fed. R. Civ. P. 13(a) 16, 17, 18

Fed. R. Civ. P. 12(a) 18

Fed. R. Civ. P. 12(b) (6) 18

Fed. R. Civ. P. 54(¢) 3

Miscellaneous:

E. Borchard, Declaratory Jvudqments (28-11 (2d

ed. 1941) 12

H. Rep. 1264, 73d Cone., 2d Sess. 2 (1931) 5

Restatement (Second) of Judaments 16, 19, 20

Restatement (Second) of Judaqments § 21 »()

Restatement (Second) of Judaments § 22 5, 16, 18, 19

Restatement (Second) of Judaments § 22(2) (b) 17

Restatement (Second) of Judaments §& 22 comments

a, b,d 20

Restatement (Second) of Judaments § 33 5

Restatement (Second) of Judaments & 23 comment

c (1982) 18

c. Wright, A. Miller & E Cooper, Federal Practice

and Procedure (1981) 19

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

No. 88-30

THE Horn & HARDART COMPANY,

Petitions r.

We

NATIONAL RAILROAD PASSENGER CORPORATION.

Responde i f.

On Petition for Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

RESPONDENT'S BRIEF IN OPPOSITION

Respondent National Railroad Passenger Corporation

(“Amtrak”) respectfully requests that this Court de ny

the petition for writ of certiorari seeking review of the

judgment and opinion of the United States Court of

Appeals for the District of Columbia Circuit in this case.

That court's opinion is reported at 843 F.2d 546.

OPINIONS BELOW

Citations to the opinions below are set forth in the

Petition.

9

JURISDICTION

Discretionary jurisdiction of this Court to review the

judgment of the United States Court of Appeals for the

District of Columbia Circuit (the “Court of Appeals”)

entered on April 8, 1988. rests on 28 U.S.C. § 1254/1).

Petitioner, The Horn & Hardart Company (“Horn &

Hardart”), commenced this action in the United States

District Court for the District of Columbia ‘the “Dis-

trict Court”), on the basis of federal diversity juriedic-

tion, 28 U.S.C. § 1332(a! (1); diversity of the parties has

continued to this day. Horn & Hardart sought a declara-

tory judgment, but the District Court granted summary

judgment in favor of defendant Amtrak on May 30,

1985. Pet. App. 50a. On June 17, 1986, that decision

was affirmed on appeal by the Court of Appeals. Pet.

App. 37a; 793 F.2d 356. Thereafter on April 23, 1987,

in accord with 28 U.S.C. § 2202, authorizing the grant

of “necessary or proper” further relief based on a prior

declaratory judgment issued under 28 U.S.C. § 2201,

the District Court granted a petition by Amtrak for fur-

ther relief. Pet. App. 12a; 659 F. Supp. 1258. It is the

Court of Appeals’ affirmance of that judgment (Pet. App.

la: 843 F.2d 546). which is the subject of the Petition.

STATUTES

Pertinent statutes are contained in the Petition.

STATEMENT OF THE CASE

This case concerns a leasing dispute which was brought

before the District Court by Horn & Hardart on the

basis of diversity jurisdiction. The ensuing judgments in

Amtrak’s favor enforced the lease terms, with the Court

of Appeals agreeing with the District Court that “none

of Horn & Hardart’s procedural or substantive argu-

ments will permit that corporation to escape its con-

tractual liability te Amtrak.” Pet. App. 10a; 843 F.2d

550.

——Se_a—aoe"as=a"_—

“*

~~

The three negotiated leases enforced by the District

Court were entered into on June 1, 1980, by Horn &

Hardart and Amtrak for restaurant and cocktail-lounge

space in Amtrak’s Pennsylvania Station in New York

City. Each of the leases contained a Notice of Termina-

tion Clause that gave Amtrak the right to terminate the

lease on ninety days’ notice “in the event that | Amtrak]

shall require the demised premises for its Corporate pur-

poses.” Pet. App. 38a; 793 F.2d 356-57. One lease in-

cluded a cancellation-premium clause requiring Amtrak

to reimburse Horn & Hardart up to $300,000 in the

event of early termination of the lease. Pet. App.

46a; 793 F.2d 360. In addition, each of the leases

contained identical End-of-Term Holdover clauses pro-

viding for liquidated damages, measured as triple

rent, Pet. App. 2a n.2; 843 F.2d 547 n.2; and identical

provisions for the payment by Horn & Hardart of costs

and expenses, including attorneys’ fees, incurred by Am-

trak due to a “default in the observance or performance

of any term or covenant on |Horn & Hardart’s| part.”

ld.

On November 29, 1984, Amtrak sent Horn & Hardart

timely ninety-day notices of termination for all three

leases. Pet. App. 5la. Amtrak intended to use the

premises for a new ticket facility and expanded waiting

room areas, as part of an overall redevelopment plan for

the station. Pet. App. 5la-52a. The construction schedule

for implementing the plan was dependent upon the avail-

ability of these spaces. Pet. App. 30a; 659 F. Supp.

1267; Pet. App. 5la.

Horn & Hardart refused to vacate the premises as

required on February 28, 1985. Instead, on March 12,

1985, nearly four months after it was notified of the

termination of its leases, Horn & Hardart instituted this

action—based on diversity of citizenship and the Declara-

tory Judgment Act—-seeking a declaration that the termi-

nations were unlawful and viclated the lease provisions,

4

as well as an injunction and $2.5 million in damages.

Pet. App. 3a; 843 F.2d 547. Amtrak promptly responded

vith a Motion to Dismiss or, in the Alternative, for

Summary Judgment.

The District Court found that Amtrak had the legal

right to terminate the leases “|bJased on the plain

language of the leases.” Pet. App. 58a. The Court of

Appeals affirmed, concluding that the District Court’s

“interpretation of the language, based upon its plain

meaning, is unimpeachable.” Pet. App. 44a; 793 F.2d at

399,'

On August 19, 1986, shortly after the Court of Appeals’

ofirmance of the District Court’s decision,” Amtrak filed

a Motion for Further Relief, pursuant to 28 U.S.C.

2202. Pet. App. 3a; 843 F.2d 547. Based on the

determination by the District Court and the Court of

Appeals that the leases were properly terminated, Amtrak

sought to enforce the liquidated damages-for-holdover and

cost-on-default provisions of the leases. Horn & Hardairt

responded with a “Motion to Dismiss Defendant’s Motion

for Further Relief.” Pet. App. 14a; 659 F. Supp. 1260.

The District Court granted Amtrak’s Motion for Further

Relief and denied Horn & Hardart’s responsive Motion

' As of the District Court’s ruling on May 30, 1985, Horn &

Hardart had not yet vacated the premises, and in consequence

Amtrak had brought and pursued three actions in New York courts

to obtain possession, Pet. App. 3a; 843 F.2d 547; National Railroad

Passenacy Corp. v. The Horn & Hardart Co., L and T Index Nos.

36876 85, B6877 8&5, 3687885 (N.Y. Civ. Ct., part 52) (consoli-

dated). Horn & Hardart subsequently agreed to the entry in the

New York courts of an order of possession; it ultimately vacated

the premises on August 5, 1985. Pet. App. 3a; 843 F.2d 547. Con-

currently in August 1985, Amtrak paid Horn & Hardart £180,000 in

compensation for the early termination in accordance with the can-

cellation-premium clause. Id.

- The Court of Appeals’ decision was rendered on June 17, 1986.

The clerk of the District Court received a certified copy of the

judgment on September 5, 1986.

>

to Dismiss, enforcing the lease terms and rejecting Horn

& Hardart’s arguments that Amtrak was precluded by

the prior proceedings in the case from obtaining any

relief on its claims under the leases.

On appeal lodged by Horn & Hardart, the Court of

Appeals agreed that Horn & Hardart’s arguments would

not allow it to “escape its contractual obligations.” Pet.

App. 10a; 843 F.2d 550. The Court of Appeals held that

the District Court never lost jurisdiction over claims based

on the lease provisions regarding liquidated damages and

costs and that Section 2202 provided a_ procedural

mechanism through which to make an award. The

court also concluded that the District Court’s award

under Section 2202 was properly based on its prior ruling

since the leases “specified that a valid notice of termina-

tion was the only factual and legal predicate necessary

for recovery of liquidated damages and costs.” Pet. App.

6a; 845 F.2d 549. The Court of Appeals then held that the

normal rules of claim preclusion—enunciated in Restate-

ment (Second) of Judgments $$ 22 and 33 and applied

consistently by the federal courts—do not bar Amtrak’s

claims here. Pet. App. 8a; 843 F.2d 549-50. On the merits,

the Court of Appeals agreed with the District Court that

the holdover liquidated-damages clauses and the cost-on-

default clauses in the leases were applicable and enforce-

able under District of Columbia law. Pet. App. 9a-10a;

843 F.2d 550.

Horn & Hardart’s Petition seeks this Court’s review

of the Court of Appeals’ affirmance of the District Court’s

award of further relief.

REASONS FOR DENYING THE WRIT

The issues posed by Horn & Hardart were correctly de-

cided by the District Court and Court of Appeals and

there are no special circumstances which suggest that

the issues are appropriate subjects for this Court’s ple-

nary consideration.

Section 2202 of Title 28 U.S.C. provides that a federal

district court with appropriate subject matter jurisdiction

.

possesses statutory authority to grant to a party—

whether a plaintiff or defendant—prevailing on a final

declaratory judgment “|f{urther necessary or proper re-

lief based on |the] declaratory judgment.” Such further

relief is a subsequent corollary to the declaratory judg-

ment; it need not have been sought, pleaded, or proven

prior to entry of the declaratory judgment. See Edward

B. Marks Music Corp. v. Charles K. Harris Music Pub-

lishing Co., 255 F.2d 518, 522 (2d Cir. 1958), cert.

denied, 358 U.S. 831 (1958). The instant action is sup-

ported squarely by the terms of the statute and by

governing case law. Amtrak’s entitlement to contractual

liquidated-damages and costs-on-default was based on a

factual and legal predicate that was conclusively deter-

mined in the final declaratory order of the District

Court—that Amtrak properly terminated its leases with

Horn & Hardart.

Both the District Court and Court of Appeals recog-

nized that Horn & Hardart has completely misstated the

jurisdictional significance of an appeal as to matters not

appealed. The first appeal of the declaratory judgment

did not affect the District Court’s power to entertain sub-

sequent proceedings “based on” that judgment because

Section 2202 “clearly anticipates] ancillary or subsequent

coercion to make an original declaratory judgment effec-

tive,” as the Court of Appeals observed. Pet. App. 4a;

843 F.2d 548. Similarly, it is Horn & Hardart, not

Amtrak, which seeks to carve out exceptions to the

doctrine of res judicata in order to bar Amtrak’s claims.

Both the District Court and the Court of Appeals agreed

that there is no support in the statute or case law for any

bar to the further relief that Amtrak was granted en-

forcing lease terms. Accordingly, there is no reason for

this Court to grant the petition.

I. The District Court Properly Exercised Jurisdiction

In upholding the District Court’s exercise of jurisdic-

tion over Amtrak’s motion for further relief, the Court

of Appeals acted in accord with long-established federal

7

law. The prior declaratory judgment in Amtrak’s favor

established the basis for further relief under Section

2202. The appeal of that judgment in no way affected

adversely the District Court’s jurisdiction to grant further

relief. Instead, it confirmed the very judgment that

established the foundation for the further relief.

The subject matter jurisdiction of the District Court

properly was invoked by Horn & Hardart’s complaint

under 28 U.S.C. § 1332(a) (1) based upon diversity of

citizenship.” Diversity of citizenship continued through

the pendency of this case in the District Court, and its

subject matter jurisdiction likewise continued.

The jurisdictional doctrine which Horn & Hardart mis-

takenly seeks to invoke provides that during the pend-

ency of an appeal, a federal district court is divested

“of its control over those aspects of the case involved in

the appeal.” Griggs v. Provident Consumer Discount Co.,

459 U.S. 56, 58 (1982) (per curiam) ‘emphasis added}.

Such divestiture operates with a determinate scope both

nas to subject matter and time. Under Griggs, the Dis-

trict Court was barred from acting only with respect to

“those aspects of the case involved in the appeal,” 7d.,

and then only during the pendency of the appeal.t As

this Court noted in Griggs, id., this rule is a prudential

* Horn & Hardart is a Nevada corporation with its principal place

of business in Las Vegas. Pet. App. 2a; 843 F.2d 547. Amtrak is

a citizen of the District of Columbia for the purpose of determining

diversity jurisdiction. 45 U.S.C. $546(m). Those circumstances

have remained unchanged since the complaint was filed.

4 Following the first appeal in this case, the Court of Appeals’

affirmance became the law of the case, precluding the District Court

from reconsidering and revising any issue resolved by the Court of

Appeals. See Briggs v. Pennsylvania Railroad Co., 234 U.S. 304

(1948), cited in the Petition at 13 n.4. As discussed infra, however.

in the initial proceedings the District Court and the Court of Ap-

peals had addressed only the question of the propriety of the notice

of termination, not the further question of entitlement to liquidated

damages and costs. :

oO

o

doctrine intended to avoid the concurrent exercise of ju-

risdiction by two courts over the same subject matter.

It does not prescribe or govern the powers of a district

court following an appeal or concerning matters not

involved in the appeal.”

Amtrak’s motion for further relief was filed after the

Court of Appeals affirmed the declaratory judgment and

relied on that effirmance to raise consequent matters that

were not involved in the appeal. The matter initially

declared by the District Court was limited specifically

and solely to a “ruling on Amtrak’s right to terminate

the leases in question for corporate purposes.” Pet. App.

58a n.6. On appeal of the declaratory judgment, the issue

was similarly limited. As the Court of Appeals stated,

the appeal was “taken from the District Court’s grant

of summary judgement in favor of |Amtrak!,” and “[t]he

issue presented |was| whether the trial court erred in

its interpretation of termination provisions contained in

the 1980 leases between Amtrak... and [Horn & Hard-

art].” Pet. App. 37a-38a; 793 F.2d at 356 ‘emphasis

added). The Griggs rule is simply inapposite.°

5 The rule that a trial court is bound to follow the mandate of

an appellate court is an aspect of the “law of the case” doctrine,

whereby trial courts are bound by determinations made by appel-

late courts unless the appellate court’s mandate explicitly leaves

open a question which has been addressed. See, e.g., Banco Nacional

de Cuba v. Farr, 383 F.2d 166, 177-78 (2d Cir. 1967), cert. denied,

390 U.S. 956 (1968). The doctrine does not strip a district court

of “subject matter” jurisdiction; it simply forecloses inquiry into

matters already decided. New matters, over which ‘subject matter”

jurisdiction continues, can be considered. See, e.g., Quern v. Jordan,

440 U.S. 332, 346 n.18 (1979) (doctrine of law of the case comes

into play only with aspect to issues previously determined; lower

court is free to decide matters left open by mandate of superior

court); Bankers Trust Co. v. Bethlehem Steel Corp., 761 F.2d 943,

950 (3d Cir. 1985) (‘A trial court is... free to make any order or

direction in further progress of the case, not inconsistent with the

decision of the appellate court, as to any question not settled by the

decision.’’).

6 Tllustrative is Henry v. Farmer City State Bank, 808 F.2d 1228

(7th Cir. 1986), relied upon by Horn & Hardart in its Petition at

Horn & Hardart nevertlieless persists in urging an

erroneous and materially misleading position regarding

the effect of an appeal on the jurisdiction of the district

court. Following disposition of an appeal, and, in limited

instances, even during pendency of an appeal, a district

court may retain authority to exercise jurisdiction over

certain matters where that authority is provided by

statute, by express reservation in the judgment or man-

date, or when the matters are collateral to or independent

of those on appeal. See, e.¢., Sprague v. Ticonic National

Bank, 307 U.S. 161, 168-69 (1939); Overnite Transpor-

tation Co. v. Chicago Industrial Tire Co., 697 F.2d 789,

792 (7th Cir. 1983).

In this case, Section 2202 of the Declaratory Jude-

ment Act constitutes express statutory authority for the

district court’s retention of jurisdiction with respect to

the matters presented in the motion for further relief.

Subject matter jurisdiction exists in this case under 28

11. In Henry, the Seventh Circuit affirmed the dismissal of a com-

plaint but nonetheless reversed the entry of an injunction against

the nlaintiff’s continued prosecution of a parallel suit in state court.

Following Griggs, the court held that the district court lacked

inrisdiction over the defendants’ motion for the injunction because

a notice of appeal had been filed. Jd. at 1240. The Seventh Circuit

continued, however, that “the defendants may refile their motion

for injunction with the district court, which will again have juris-

diction over the case after our decision is final,” ‘d. at 1240 n.8, even

though the final decision was a dismissal of the plaintiff's claims,

as here.

7 Other avenues to relief could have been pursued by Amtrak.

A more cumbersome and less cfficient procedural option would have

heen to file a separate suit for further relief based on the prior

judgment. Correlatively, Amtrak could have responded initial!y to

Horn & Hardart’s complaint by answering and raising counter-

claims based upon the lease terms. See Kyle Enaireerina Co, v.

Kleppe, 600 F.2d 226, 232 (9th Cir. 1979); National Research Bu-

reanu, Inc. v. Bartholomew, 482 F.2d 386, 388-89 (3d Cir. 1973)

(per curiam): Saitzer Brothers, Inc. v. Chicago Cardbourd Co., 252

F.2d 407, 410 (7th Cir. 1958). Federal diversity jurisdiction would

exist in respect of each of these options.

10

U.S.C. § 13382(a)(1), and should not be confused with

the authority provided by the Declaratory Judgment Act

for the federal courts to grant an enlarged range of

remedies. See Skelly Oil Co. v. Phillips Petroleum Co.,

339 U.S. 667, 671 (1950); Aetna Life Insurance Co. v.

Haworth, 300 U.S. 227, 240 (1937). See also Wind-

moller v. Laqguerre, 284 F. Supp. 563, 564 (D.D.C. 1968).

In that context, Section 2202 established a mechanism

whereby all aspects of an action brought before a district

court on a complaint for declaratory relief could be

resolved in the same forum.

The intervening appeal by Horn & Hardart does not

diminish the district court’s explicit statutory authority

for further relief set out in 28 U.S.C. §§ 2201 and 2202,

nor does it eliminate the basis for diversity jurisdiction

with respect to matters not involved in the appeal. See

McNally v. American States Ins. Co., 339 F.2d 186, 187

(6th Cir. 1964) (per curiam) (plaintiff properly sought

further relief after prior declaratory judgment affirmed

by appellate court). See also, e.g., Rincon Band of Mis-

sion Indians v. Harris, 618 F.2d 569, 575 (9th Cir.

1980) (dictum) (district court has inherent power and

is empowered by the Declaratory Judgment Act to grant

supplemental relief after appeal is decided). Horn &

Hardart is thus wrong to suggest that the Court of Ap-

peals permitted the Declaratory Judgment Act to “alter

the jurisdiction of the federal courts.” Petition at 13.

The prior disposition of the claim for declaratory relief

poses no jurisdictional bar to consideration on the merits

of Amtrak’s claim for further relief based on that judg-

ment. Indeed, Section 2202 explicitly makes the declara-

tory judgment the basis of, not a bar to, further relief. As

the Court of Appeals recognized, to find such a bar in the

declaratory judgment context “would allow the party

against whom a declaratory judgment is rendered to

nullify her adversary’s right to $ 2202 relief merely by

lodging an appeal.” Pet. App. 5a; 843 F.2d 548.

11

II. Relief Was Properly Granted Under 28 U.S.C. § 2202

Under Section 2202, a district court is authorized, af-

ter reasonable notice and a hearing, to order “|f|urther

necessary or proper relief based on a declaratory judg-

ment or decree” entered under Section 2201, and may

order the relief “against any adverse party whose rights

have been determined” by the prior judgment. 28 U.S.C.

$ 2202 (emphasis added). The District Court faithfully

followed the dictates of the Declaratory Judgment Act

and concluded that its prior declaratory judgment in

Amtrak’s favor was an affirmative basis for further

relief. The District Court found Horn & Hardart’s lia-

bility for holdover-liquidated-damages and cost-on-default

to flow directly from its prior declaration that the leases

were properly terminated. Pet. App. 19a; 659 F. Supp.

1262.

In affirming the District Court, the Court of Appeals

was convinced that “Amtrak’s request for further relief

in the form of triple rent and attorney’s fees follows

absolutely from, and is based on, the District Court’s

decision in Horn & Hardart I confirming Amtrak’s right

to terminate the leasehold.” Pet. App. 6a: 843 F.2d 548.

In addition, it found that “|f]lurther relief is certainly

proper in this case because the leasehold arrangement be-

tween Amtrak and Horn & Hardart specified that a valid

notice of termination was the only factual and legal predi-

cate necessary for recovery of liquidated damages and

costs.” Pet. App. 6a; 843 F.2d 549.

Rejecting Horn & Hartdart’s argument, the Court of

Appeals found that the plain language of the Declaratory

Judgment Act does not require thet the further relief

based on the judgment “‘be ‘necessary’ to effectuate the

lease termination ruling,” but only that it be proper.

Id. The language of Section 2202 has been similarly ap-

plied by the courts and commended by the commentators.*

8 See, e.g., Besler v. U.S. Department of Agriculture, 629 F.2d

458, 454-55 (8th Cir. 1981) (per curiam) (where government pre-

36

12

As both the Court of Appeals and the District Court

explicitly recognized, this case is on all fours with Fed-

ward B. Marks Music Corp. v. Charles K. Harris Music

Publishing Co., 255 F.2d 518 (2d Cir.). cert. denied, 358

U.S. 831 11958), where a plaintiff who prevailed in a

declaratory judgment action regarding ownership of copy-

rights was subsequently allowed to seek further relief

based on the separate but related claims for infringe-

ment and an accounting. See Pet. App. 6a; 843 F.2d at

548; Pet. App. 18a-19a: 659 F. Supp. at 1262." As the

vailed as defendant in prior declaratory action aimed at preventing

it from recovering payments improperly made to ranchers, district

court erred in failing to grant government’s later motion for further

relief seeking money judgments against the original plaintiffs) :

Sakezzie v. Utah State Indian Affairs Comm'n, 215 F. Supp. 12, 21-

22 (PD. Utah 1963) (grant of request for further relief under See-

tion 2202, including attorney’s fees and costs for litigating the

original declaratory action more than two years before and for

fees and costs for pursuing the supplemental relief, is “clearly

within the power and duty of the court”): E. Borchard, Declaratory

Judgments 438-41 (2d ed. 1941). See also Powell v. McCormack.

395 U.S. 486, 499 (1969) (“A court may grant declaratory relief

even though it chooses not to issue an injunction or mandamus.

A declaratory judgment can then be used as a predicate for fur-

ther relief... .” (citations omitted)); Alexander & Alexander,

Inc. v. Van Impe, 787 F.2d 163, 166 (3d Cir. 1986) (“The prevailing

party in a declaratory judgment action subsequently may seek

further relief; such ‘further relief’ can include damages,” (em-

phasis in original; citation omitted) ): McCann v. Kerner, 436 F.2d

1342, 1244 (7th Cir. 1971) (per curiam) (Section 2202 “contem-

plates that subsequent to the issuance of a declaratory judgment,”

a court may grant further relief).

“Horn & Hardart suggests that Marks Musie is distinguishable

on the grounds that further relief in that case was sought in the

original complaint, Petition at 21 1.14, but carefully ignores the

fact that the Marks Music court explicitly rejected the argument

that a failure to allege infringement and damages in the orisinal

complaint would prevent such further relief:

[T\his argument is specious. If plaintiff had proved infringe-

ment on the trial it would have been entitled to damages under

13

Second Circuit concluded, Section 2202 ‘authorizes fur-

ther or new relief based on the declaratory judgment,

and any additional facts which might be necessary to

support such relief can be proved on the hearing pro-

vided in the section or in an ancillary proceeding if that

is necessary.” 255 F.2d at 522 (citation omitted). Just

as the declaratory judgment that Marks Musie owned

the copyrights established its right to seek damages for

infringement, the declaratory judgment that Amtrak had

lawfully exercised its right to terminate the leases on

ninety days’ notice established its entitlement to liqui-

dated damages and costs for Horn & Hardart’s holding

over beyond the ninety days."

Despite the plain language of the statute and the con-

sistent precedent. Horn & Hardar* again argues that the

further relief provision is “limited to further relief to

effectuate the underlying declaratory judgment.” Peti-

tion at 22. Although Horn & Hardart has cited a num-

Fed. R. Civ. Proc.. rule 54(e): but under the declaratory iude-

ment statute it was not compelled to take this course.

255 F.2d at 522.

© Horn & Flardart is thus wrong to suggest that Amtrak's right

to further relief was any less established by the declaratory jude-

ment here than was the plaintiff’s in Marks Music. Petition at 21

n.14. For the same reason, it is beside the point that “Horn &

Hardart vigorously disputes .\mtrak’s entitlement on the merits to

the relief it seeks.” Jd. at 20. Horn & Hardart lost on the merits

in both the District Court and the Court of Appeals and has not

sought review of the merits in this Court.

Similarly, Horn & Hardart wrongly asserts that “the final judg-

ment confirming Amtrak’s right to the premiscs was already fully

implemented, since Tforn & Hardart had vacated the premises.” /d.

at 12. See id. at 20. Horn & Hardart did not vacate until more than

five months after the leases’ terms ended, and, as both the District

Court and Court of Appeals held, Amtrak is entitled to damages

and costs resulting from the holdover. Horn & Hardart has not

challenged that holding.

ber of cases in which further relief was found necessary

to effectuate the prior judgment, Petition at 19-20 &

n.13, there is no suggestion in any of those cases that a

court may not grant further relief that is proper based

on the prior judgment. Horn & Hardart has not cited

a single federal precedent which construes Section 2202

to authorize only relief which is necessary and not relief

that is proper but not necessary.'' There is good reason

for this failure, since such a reading would elide the

word “proper” from the statute. Nor is Horn & Hardart’s

attempt to conjure up a conflict in the reported decisions

advanced by its citation to non-binding state court de-

cisions under the Uniform Declaratory Judgment Act.

The state cases do not support its position. The principal

such decision on which Horn & Hardart relies, Oklahoma

Alcoholic Beverage Control Bd. v. Central Liquor Co..

421 P.2d 244 (Okla. 1966), is entirely inapposite. The

case involved a declaratory judgment that the Board’s

“minimum price regulation” was void. A second action,

brought over two years later, involved the authority of

the Board—under an entirely different statute—to regu-

late price discounts. The second determination was in

no way predicated on the first, and the Oklahema court

treated the plaintiff’s second suit as constituting a second

cause of action rather than a request for further relief

based on the prior declaratory judgment. /d. at 247.

When Horn & Hardart complains that in following

the plain language of Section 2202, the Court of Appeals

and District Court issued “an invitation deliberately to

! The cases Horn & Hardart cites are contrary to the proposition

it seeks to establish. See Doe v. Gallinot, 687 F.2d 1017, 1025 (9th

Cir. 1981) (court may order further necessary or proper relief) ;

Rincon Band of Mission Indians v. Harris, 618 F.2d 569, 575 (oth

Cir. 1980) (Section 2202 authorizes “supplemental relief"): Teas

v. Twenticth Century-For Film Corp., 413 F.2d 1262, 1267 (Sth

Cir. 1969) (Section 2202 “authorizes necessary or proper relief”).

15

partition a case,” Petition at 23, it only exhibits its

failure to appreciate the remedial and procedural changes

wrought by adoption of the Declaratory Judgment Act.

The Act intentionally allows a greater measure of claim

splitting than in other types of cases. The structure of

the Act explicitly contemplates, and the case law con-

firms, that a plaintiff may initially seek solely a declara-

tory judgment and then, if necessary or proper, subse-

quently follow up with claims for damages or an injune-

tion that flow from the prior declaration. See, e.g., Judge

Parker’s elucidation of the purpose of the Act and of its

use as an additional remedy in two leading cases decided

on the same day shortly after its enactment. Stephenson

v. Equitable Life Assur. Soc’y, 92 F.2d 406, 409 (4th

Cir. 1937); Aetna Casualty & Surety Co. v. Quarles, 92

F.2d 321, 325 (4th Cir. 1937). To narrow the scope of

the Act as Horn & Hardart urges would not only conflict

with the plain language of the Act, but would also un-

necessarily limit the savings of judicial resources that the

Act was specifically intended to provide. See H. Rep.

1264, 73d Cong. 2d Sess. 2 (1934)."

Ill. The Doctrine Of Res Judicata Does Not Bar Amtrak’s

Claims

Application of the traditional doctrine of res judicata

does not bar Amtrak’s claims but rather confirms that the

District Court properly exercised jurisdiction under Sec-

'2 In an effort to spark the interest of the Court in the Petition,

llorn & Hardart refers for the first time to “serious due process”

concerns it alleges are raised by Section 2202’s “reasonable notice

and hearing” procedure for the grant of further necessary or proper

relief. Petition at 23. The concerns are specious; Horn & Hardart

does not (and could not) claim that it did not have ample, let alone

constitutionally adequate, notice of Amtrak’s claims. It had, and

actually invoked, every opportunity to defend against them—at

each level of the federal judiciary.

16

tion 2202. No unique or novel theories are required or

were employed by the Court of Appeals."

in this action, Amtrak as defendant moved to dismiss

or in the alternative for summary judgment on the

decloratery claim before it filed or was required to file

an answer.’ Consequently, by virtue of Fed. R. Civ. P.

(3ta), Amtrak was not required to assert any counter-

cinims. As the Court of Appeals held, where, as here, “a

defendant neither asserts, nor is required to assert, a

counterclaim, Restatement ‘Second) of Judgments § 22

explains that the previously unlitigated issues will not

later be estopped by the earlier action.” Pet. App. 8a;

843 F.2d 549 ‘citation omitted). Horn & Hardart’s ana-

lyticz! premise thus evaporates; it does net dispute this

propesiiion—it simply ignores it.

The doctrines reflected by this fundamental portion of

the Restetement have been readily applied by the federal

courts. Generally, a defendant who is not required to

bring a counterclzim under Fed. R. Civ. P. 13¢a) is not

precluded by any res judicata principles from prosecuting

its own claims in a separate subsequent suit. See County

Fuc! Co. v. Equitable Bank Corp., 832 F.2d 290, 292

' Horn & Hardart misstates “the usual prerequisites for applica-

tion of res judicata.” Petition at 24. To facilitate the Court's re-

view, relevant portions of the Restatement (Second) of Judgments

are reproduced in an Appendix to this brief.

"Thus Amtrak did not file a “pleading” within the meaning

of Fed. R. Civ. P. 7(a). Rule 13a) of the Federal Rules of Civil

Procedure states, in pertinent part:

Compulsory Counterclaims. A pleading shall state as a counter-

claim any claim which at the time of serving the pleading

the pleader has against any opposing party. if it arises out of

the transaction or occurrence that is the subject matter of the

opposing party’s claim and does not require for its adjudication

the presence of third parties of whom the court cannot acquire

jurisdiction.

(4th Cir. 1987). The courts of appeals and district

courts have uniformly held that until a responsive plead-

ing is required of a party, Rule 13(a) does not apply and

the party thus need not raise its counterclaims in order

to preserve the right to plead them subsequently or to

bring them as claims in a subsequent action."*

% The only exception to this rule is the situation where “|t!he

relationship between the counterclaim and the plaintiff's claim is

such that the successful prosecution of the second action would

nullify the initial judgment or would impair rights established

in the initial action.” Restatement (Second) of Judaments §$ 22

(2)(b). See Henry v. Farmer City State Bank, 808 F.2d 1228, 1232

(7th Cir. 1986) (quoting §22(2)(b)): Rudell v. Comprehensive

Accountina Corp., 802 F.2d° 926, 928 (7th Cir. 1986) ‘citing § 22

(2)(b)), cert. denied, 107 S. Ct. 1351 (1987); County of Cook v.

Midcon Corp., 77% F.2d 892, 908 & n.10 (7th Cir. 1985) (quoting

$ 22(2)(b)): Martino v. McDonald's Sustem, Ine.. 598 F.2d 1079,

1084-85 (7th Cir.) (where facts form basis of both defense and

counterclaim, defendant's failure to allege does not preclude use of

facts in subsequent proceeding against plaintiff; exception to rule

is that counterclaim is barred where “its prosecution would nullify

rights established by the prior action.”), cert. denied, 444 U.S. 966

(1979).

See United States v. Snider, 779 F.2d 1151, 1157 (6th Cir.

1985); Martino v. MeDonald’s System, Inc., 598 F.2d 1079, 1082

(7th Cir.), cert. denied, 444 U.S. 966 (1979): Lawhorn v. Atlantic

Refinina Co., 299 F.2d 353, 356 (Sth Cir. 1962): Central States,

Southeast & Southwest Areas Pension Fund v. Commercial Cartage

Ca., No. 86C 3268, slip op. (N.D. Il Apr. 24, 1987) (available on

Westlaw); United States v. Thompson, 262 F. Supp. 340, 342-43

(S.D. Tex. 1966): Potter v. Carvel Stores of New York, Ine., 20%

F. Supp. 462, 464-€5 (D. Md. 1962), aff'd, 314 F.2d 45 (4th Cir.

1963). In National Union Fire Ins. Co. of Pittsburgh, PA v. Jett,

118 F.R.D. 336 (S.D.N.Y. 1988), the defendant had filed in an

earlier action, as in this case, a motion to dismiss, or in the alterna-

tive for summary judgment prior to being required to file its

answer. The court granted summary judgment, or in the alternative

the motion to dismiss. The defendant later sought to pursue its

counterclaims, and the court held that where no responsive pleading

was required in the prior action, the defendant was not barred

from bringing the new action. 7d. at 337-38.

18

In the instant case Amtrak never filed a responsive

pleading because Horn & Hardart’s claim received a sum-

mary disposition before any answer by Amtrak was re-

quired.'"* Since Amtrak was not required to file an

answer, Rule 13(a) does not apply, and under longstand-

ing principles of res judicata as explicated in Section 22

of the Restatement (Second), Amtrak was not precluded

from seeking further relief.

ven if Amtrak had been plaintiff, not defendant, res

judicata would not bar the claims for liquidated damages

and costs. In the case of a plaintiff who brings an action

seeking only declaratory relief, the Restatement (Second)

provides that

‘tlhe effect of such a declaration, under this ap-

proach, is not to merge a claim in the judgment or to

bar it. Accordingly, regardless of outcome, the plain-

tiff or defendant may pursue further declaratory or

injunctive relief in a subsequent action . .. in-

clud/ing] damages which had accrued at the time

the declaratory relief was sought .

Restatement (Second) of Judgments § 33 comment ec

Ifszi. As a result, the Court of Appeals did not need

to consider whether Section 2202 “might actually enlarge

the declaratory judgment exception to claim preclusion to

permit a supplemental action even where the original

action involved more than declaratory relief.” Pet. App.

saon.6; 843 F.2d 549 n.6."% Horn & Hardart is wrong to

* This situation is entirely within the contemplation of Rules

a’ and 12(b)(6) that a motion to dismiss for failure to state

a claim tolls the requirement of filing an answer, even if it is treated

as a summary judgment motion because matters outside the com-

plaint are considered.

~The tssue was raised because the District Court missed the

mark in stating that “if applicable, traditional res judicata bars

\mtrak’s petition for further relief.” Pet. App. 24a; 659 F. Supp.

1264. Traditional! res judicata principles do not bar the defendant’s

non-compulsory counterclaims except where their prosecution would

Pe

19

insist, therefore, that ‘“[{t]he court below’ extended the

declaratory judgment exception.” Petition at 25.

Horn & Hardart’s arguments for preclusion contra-

vene fundamental principles governing the effects of a

former adjudication. In considering the non-compulsory

counterclaims of a defendant involuntarily brought into

court to respond to a complaint by an adverse party,

there is no basis to apply preclusion rules with the force

applicable to the claims of a plaintiff which have been

fully adjudicated on the merits. Under the Restatement

(Second) of Judgments and consistent judicial precedent,

defendants should not normally be required to assert their

non-compulsory counterclaims to plaintiffs’ claims at the

time and place of plaintiffs’ choosing.”

implicate the repose of the original judgment, as explained supra.

The District Court’s citation to Montana v. United States, 440 US.

147 (1979), Pet. App. 23a; 659 F. Supp. at 1264, is inapposite be-

cause that case describes general res judicata principles, 440 U.S.

at 153, in the context of the attempt by the privy of a non-prevailing

plaintiff in a prior adjudication to avoid the collateral estoppel effect

of the prior adjudication. Similarly, the treatise cited by the Dis-

trict Court, C. Wright, A. Miller & E. Cooper, Fede-al Prectice and

Procedure (1981), Pet. App. 23a, 659 F. Supp. at 1264, does not

suggest that res judicata applies broadly to defendants with non-

compulsory counterclaims. In fact, the authors state explicitly that

“(flailure to advance a merely permissive counterclaim . . . ordi-

narily does not preclude a later action,” id. § 4414 at 109, except in

the case of counterclaims that involve “direct attacks on the origi-

nal judgment based on defenses or claims that could have been ad-

vaneed in the first action,” id. at 110, or where the repose of the

first judgment is otherwise threatened with “effective destruction in

a later action by the former defendant,” id. at 111. The rule that

emerges thus is fully congruent with that enunciated in Restatement

(Second) of Judgments § 22.

19 See Kaspar Wire Works, Inc. v. Leco Engineering & Machine,

Inc., 575 F.2d 530, 536 (5th Cir. 1978) (if defendant’s claims merged

in unsuccessful declaratory action by plaintiff, impermissible result

would be that plaintiff could extinguish defendant's claims by suing

for declaratory relief and voluntarily dismissing the suit with

a= \

Apocalyptically, Horn and Hardart has asserted over

and over again before this Court, as it did before the

District Court and the Court of Appeals, that a failure

to preclude Amtrak’s claims means that a court could

never know whether its declaratory judgment would or

would not finally settle and determine the controversy

between the parties. This assertion is fallacious. Under

the principles enunciated in Restatement (Second) of

Judgments § 21, see App. la, a subsequent presentation

of counterclaims by a prior defendant would implicate

thereafter the full panoply of rules of issue and claim

preclusion as to those claims.

The instant case provides a good example of the effi-

cacy and efficiency of the preclusion rules set out in the

Restatement Second and applied by federal courts. In

this ease, the District Court exercised its discretion—at

Horn & Hardart’s insistence—to hear Horn & Hardart’s

claim for declaratory, coercive, and monetary relief and

found that claim to be invalid before any answer was

filed, or required to be filed, by Amtrak. Thereafter, by

way of a motion for further relief in the forum of the

plaintiff's choice, Amtrak chose to raise its claims for

holdover liquidated-damages and costs-on-default based

on the prior judgment. Depending upon the outcome of

this petition, the determination of these claims by the

District Court will be a final adjudication. The entire

matter has been handled in a careful and expeditious

manner with minimal taxation of judicial—or litigants’

~~resources,

prejudice); Leawhorn v. Atlantic Refining Co., 299 F.2d 353, 357

(Sth Cir, 1962); National Union Fire, 118 F.R.D. at 337-38: Restate

ment (Second) of Judgments § 22 comments a. b, d.

21

CONCLUSION

For the foregoing reasons, this Court should deny the

petition for writ of certiorari.

Respectfully submitted,

CHARLES F. LETTow *

MATTHEW D. SLATER

MICHAEL J. SUSSMAN

CLEARY, GOTTLIEB,

STEEN & HAMILTON

1752 N Street, N.W.

Washington, D.C. 20056

(202) 728-2700

* Counsel of Record Counsel for Respondent

August 8, 1988

la

APPENDIX

Restatement (Second) of Judgments $18 (1982) pro-

vides:

$18. Judgment for Plaintiff—The General Rule of

Merger

When a valid and final personal judgment is ren-

dered in favor of the plaintiff:

(1) The plaintiff cannot thereafter maintain an

action on the original claim or any part thereof,

although he may be able to maintain an action upon

the judgment; and

(2) In an action upon the judgment, the defendant

cannot avail himself of defenses he might have inter-

posed, or did interpose, in the first action.

Restatement (Second) of Judgment § 21 provides:

$21. Judgment for Defendant on His

Counterclaim

(1) Where the defendant interposes a counterclaim

on which judgment is rendered in his favor, the rules

of merger are applicable to the claim. stated in the

counterclaim, except as stated in Subsection (2).

(2) Where judgment on a counterclaim is rendered

in favor of the defendant, but he is unable to obtain

full recovery in the action because of the inability of

the court to render such a judgment and the unavail-

ability of such devices as removal to another court or

consolidation with another action in the same court,

the defendant is not precluded from subsequently

maintaining an action for the balance due on the

claim stated in the counterclaim.

2a

testatement ‘Second! of Judgment § 22 (1982) pro-

vides:

$22. [effect of Failure to Interpose Counterclaim

(1) Where the defendant may interpose a claim as

a counterclaim but he fails to do so, he is not thereby

precluded from subsequently maintaining an action

on that claim, except as stated in Subsection (2).

(2) A defendant who may interpose a claim as a

counterclaim in an action but fails to do so is pre-

cluded, after the rendition of judgment in that ac-

tion, from maintaining an action on the claim if:

‘a’ The counterclaim is required to be inter-

posed by a compulsory counterclaim statute or

rule of court, or

‘b) The relationship between the counter-

claim and the plaintiff’s claim is such that sue-

cessful prosecution of the second action would

nullify the initial judgment or would impair

rights established in the initial action.

Comment d to Section 22 explains the application of these

rules to a situation where, as here. the same facts con-

stitute a defense to plaintiff's claim and a ground for

counterclaim:

d. Defense and counterclaim—Judqment for defend-

ant; splitting claims. Where the same facts consti-

tute a defense to the plaintiff's claim and a ground

for counterclaim, and the defendant sets up these

facts as a defense but not as a counterclaim, and

after litigation of the defense judgment is given for

re defendant, the defendant is not precluded by the

rule of merger from maintaining a subsequent ac-

tion against the plaintiff based upon these facts.

See Hlustration 5. In the subsequent action, the

3a

rules of issue preclusion (see $$ 27, 28) will apply

to issues litigated and determined in the first action.

Illustration 5 to Section 22 is directly pertinent to the

instant case.

5. A brings an action against B for the negligent

driving of an automobile by B resulting in a collision

with an automobile driven by A. B in his answer

denies that he was negligent and alleges that the col-

lision was due to A’s negligence. After trial of these

issues judgment is given for B. B is not precluded

by the doctrine of merger from thereafter maintain-

ing an action against A for the damage done to him

by the collision.