Gonzalez Abreau v. Banco Central

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 93-2021

OLGA GONZALEZ,
a/k/a OLGA GONZALEZ ABREU, ET AL.,
Plaintiffs, Appellants,

v.

BANCO CENTRAL CORP., ET AL.,
Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Hector M. Laffitte, U.S. District Judge]

Before

Selya, Circuit Judge,

Bownes, Senior Circuit Judge,

and Stahl, Circuit Judge.

Fernando L. Gallardo, with whom Woods & Woods was on brief,

for appellants.
Luis Sanchez Betances, with whom Ivonne Cruz Serrano, Luis

A. Melendez-Albizu, and Sanchez-Betances & Sifre were on brief,

for appellees.

June 30, 1994

SELYA, Circuit Judge. This appeal raises tantalizing
SELYA, Circuit Judge.

questions concerning the application of the doctrine of res

judicata to nonparties. Because we conclude that appellants

cannot lawfully be precluded from bringing their action in the

circumstances at bar, we reverse the district court's order of

dismissal and remand for further proceedings.

I. BACKGROUND

In the 1970s, a consortium of real estate developers

sold subdivided lots of undeveloped land to approximately 3,000

purchasers, most of whom resided in Puerto Rico. Contrary to the

promoters' glowing representations, the real estate proved to be

Florida swampland, unsuitable for development.

In 1982, a gaggle of duped purchasers (whom we shall

call "the Rodriguez plaintiffs") commenced a civil action in the

United States District Court for the District of Puerto Rico.

They sued the sellers, the banks that financed the project,1 and

several related individuals. The Rodriguez plaintiffs alleged

violations of the Interstate Land Sales Full Disclosure Act

("ILSFDA"), 15 U.S.C. 1703, the Securities Exchange Act of

1934, 15 U.S.C. 78j, Rule 10b-5 thereunder, 17 C.F.R.

240.10b-5, and the Racketeering Influenced and Corrupt

Organizations Act ("RICO"), 18 U.S.C. 1961-1964. Some of the

plaintiffs then assisted in the formation of the Sunrise

Litigation Group. The group's members paid fees that helped

1Most of the financing was undertaken by Banco Central y
Economias and Banco de Economias, the predecessors in interest of
defendant-appellee Banco Central Corp.

2

defray the costs of the litigation and exchanged information that

sometimes proved to be of use in pursuing the litigation.

After several years of discovery and numerous

amendments to the pleadings, the Rodriguez plaintiffs, 152

strong, sought to convert their suit to a class action. In April

of 1987, the district court refused either to certify a class or

to permit additional plaintiffs to intervene. Almost immediately

thereafter, several prospective plaintiffs who had tried in vain

to join the Rodriguez litigation initiated the instant action.

The new coalition of claimants (whom we shall call "the Gonzalez

plaintiffs") were represented by the same lawyers who represented

the Rodriguez plaintiffs. They sued the same defendants and

their complaint mimicked a proposed amended complaint on file

(but never allowed) in the Rodriguez litigation.

During the next few years, some of the Gonzalez

plaintiffs joined the Sunrise Litigation Group. In the same time

frame, they prevailed on no fewer than five motions to bring in

additional claimants. And on January 16, 1992, the district

court allowed the Gonzalez plaintiffs to amend their complaint to

include mail fraud as a RICO predicate act, see 18 U.S.C.

1962(d), and to include claims for breach of contract and fraud

under Puerto Rico law, see, e.g., P.R. Laws Ann. tit. 31, 3018.

Despite strong evidence of skullduggery,2 the

2Judge Fuste, who presided over the Rodriguez case, believed
the plaintiffs "undoubtedly" had been wronged. Even while
upholding many of the defendants' legal arguments, he lamented
the seeming injustice "in allowing the . . . sellers of swampland
to trusting buyers, to walk from this court without so much as a

3

Rodriguez plaintiffs frittered away much of their case through a

series of pretrial blunders. See, e.g., Rodriguez v. Banco

Central Corp., 727 F. Supp. 759, 763-65 (D.P.R. 1989) (dismissing

claims under ILSFDA as time-barred), aff'd in part and vacated in

part, 917 F.2d 664 (1st Cir. 1990); id. at 769-70 (dismissing

RICO claims premised on federal securities violations); Rodriguez

v. Banco Central Corp., 777 F. Supp. 1043, 1047 (D.P.R. 1991)

(discussing plaintiffs' failure to plead certain potentially

viable claims). The Rodriguez plaintiffs ultimately lost what

remained of their case after a seven-week jury trial when Judge

Fuste directed verdicts for the defendants on the only surviving

claims and this court upheld his ruling on appeal, see Rodriguez

v. Banco Central Corp., 990 F.2d 7, 14 (1st Cir. 1993).

Following the interment of the Rodriguez litigation,

renewed attention focused on the Gonzalez litigation (which was

pending before Judge Laffitte). By then, the Gonzalez plaintiffs

were pressing certain claims that replicated those pressed and

lost by the Rodriguez plaintiffs, e.g., claims under the ILSFDA,

Rule 10b-5, and RICO (premised on securities fraud), and certain

additional claims that had been neglected or abandoned by the

Rodriguez plaintiffs, e.g., RICO claims premised on mail fraud,

state-law claims for fraud, and claims for breach of contract.

After silhouetting the Gonzalez plaintiffs' suit

against the backdrop of the completed Rodriguez litigation, Judge

scratch." Rodriguez v. Banco Central Corp., 777 F. Supp. 1043,

1065 (D.P.R. 1991).

4

Laffitte, by way of an unpublished memorandum opinion, dismissed

the action in its entirety on grounds of res judicata. The

Gonzalez plaintiffs appeal. We have jurisdiction pursuant to 28

U.S.C. 1291.

II. ANALYSIS

Although appellants were not parties to the earlier

litigation, the court below applied res judicata in bar of their

claims under a theory of privity. The applicability vel non of

the doctrine of res judicata presents a question of law over

which we exercise plenary appellate review. See E. & J. Gallo

Winery v. Gallo Cattle Co., 967 F.2d 1280, 1287 (9th Cir. 1992).

Federal law governs the res judicata effects of a federal court

judgment in a federal question case as applied to a later case

that again presents a federal question to a federal court. See

Blonder-Tongue Labs., Inc. v. University of Ill. Found., 402 U.S.

313, 324 n.12 (1971); Kale v. Combined Ins. Co., 924 F.2d 1161,

1165 (1st Cir.), cert. denied, 112 S. Ct. 69 (1991); see also 18

Charles A. Wright, et al., Federal Practice and Procedure 4466,

at 617-18 (1981) (hereinafter "Wright & Miller"). Thus, because

both the earlier (ostensibly precluding) suit and the later

(ostensibly precluded) suit invoked federal question

jurisdiction, see 28 U.S.C. 1331, the rule of decision here is

supplied by federal law.

The accepted formulation of res judicata for federal

court use teaches that "a final judgment on the merits of an

action precludes the parties or their privies from relitigating

5

issues that were or could have been raised in that action."

Allen v. McCurry, 449 U.S. 90, 94 (1980). Accordingly, the

elements of res judicata are (1) a final judgment on the merits

in an earlier suit, (2) sufficient identicality between the

causes of action asserted in the earlier and later suits, and (3)

sufficient identicality between the parties in the two suits.

See Aunyx Corp. v. Canon U.S.A., Inc., 978 F.2d 3, 6 (1st Cir.

1992), cert. denied, 113 S. Ct. 1416 (1993); Kale, 924 F.2d at

1165.

In the present situation, the first element in this

tripartite test provokes no controversy; appellants concede that

the earlier (Rodriguez) suit resulted in final judgment on the

merits. Thus, we concentrate our energies on the remaining two

prongs of the test.

A. Identicality of Causes of Action.

To determine whether sufficient subject matter identity

exists between an earlier and a later suit, federal courts employ

a transactional approach. See Kale, 924 F.2d at 1166; Manego v.

Orleans Bd. of Trade, 773 F.2d 1, 5 (1st Cir. 1985), cert.

denied, 475 U.S. 1084 (1986); see also Restatement (Second) of

Judgments 24 (1992). This approach recognizes that a valid and

final judgment in an action will extinguish subsequent claims

"with respect to all or any part of the transaction, or series of

connected transactions, out of which the action arose." Manego,

773 F.2d at 5 (quoting Restatement 24).

To understand the transactional approach, it is

6

necessary to appreciate that a single transaction or series of

transactions can and often does give rise to a multiplicity

of claims. Phrased another way, "[a] single cause of action can

manifest itself in an outpouring of different claims, based

variously on federal statutes, state statutes, and the common

law." Kale, 924 F.2d at 1166. The necessary identity will be

found to exist if both sets of claims those asserted in the

earlier action and those asserted in the subsequent action

derive from a common nucleus of operative facts. See id. This

principle pertains no matter how diverse or prolific the claims

themselves may be. See 1B J. Moore, Federal Practice 0.410[1]

at 350 (2d ed. 1993) (explaining that "the `cause of action' or

`claim' . . . is bounded by the injury for which relief is

demanded, and not by the legal theory"). It follows that the

omission of a particular statement of claim from the original

suit is of no great consequence; if the transaction is the same

and the other components of the test are satisfied, principles of

res judicata will bar all claims that either were or could have

been asserted in the initial action. See Kale, 924 F.2d at 1166;

Manego, 773 F.2d at 5. The key is to define the underlying

injury.

This definitional process is not a purely mechanical

exercise. "What factual grouping constitutes a `transaction',

and what groupings constitute a `series', are [matters that

should] be determined pragmatically," taking into consideration a

wide variety of relevant factors, including but not limited to

7

such things as "whether the facts are related in time, space,

origin, or motivation, whether they form a convenient trial unit,

and whether their treatment as a unit conforms to the parties'

expectations . . . ." Aunyx, 978 F.2d at 7 (quoting Restatement

(Second) of Judgments 24).

Given these criteria, we believe that there is

sufficient identicality here between the earlier and later

actions to satisfy the requisite standard. Without exception,

appellants' claims stem from the same series of transactions as

the claims asserted in the initial litigation. Although the

individual sales contracts are different, all of them arise out

of a single course of conduct undertaken by a band of allied

defendants. By like token, while each purchaser acquired a

different lot at a different price, all the lots are part of the

same development and all were sold by means of the same ballyhoo.

At the very least, the two sets of claims are closely related in

time, origin, and geography.

Moreover, if merged, the two sets of claims would form

a well-integrated unit. The same kinds of land sale contracts

that the Rodriguez plaintiffs attacked under ILSFDA and sought to

characterize as "securities" for purposes of their RICO claim,

see Rodriguez, 990 F.2d at 9, underlie appellants' current

claims. To be sure, appellants have negotiated the procedural

minefield more nimbly than their predecessors, and have,

therefore, assembled a more varied assortment of legal theories;

but their claims including both those that replicate the

8

Rodriguez plaintiffs' claims and those that do not implicate

the same series of interconnected transactions that gave rise to

the causes of action litigated in the earlier lawsuit. In short,

both sets of claims, though dressed in different legal garb, grow

out of a common nucleus of operative facts. No more is exigible.

B. Identicality of Parties.

Concluding, as we do, that the district court's

analysis passes muster on the first two components of the

tripartite test, we turn to the third essential ingredient needed

to invoke the doctrine of res judicata: the presence of a

sufficient identity between the parties to the earlier and later

actions. Short of situations in which precisely the same parties

appear in both suits, this element is almost always difficult to

gauge.

1. Nonparty Preclusion. We step back to gain a sense
1. Nonparty Preclusion.

of perspective. We are aware that a Supreme Court dictum can be

read to suggest that res judicata is inoperative as a matter of

law insofar as nonparties are concerned. See Montana v. United

States, 440 U.S. 147, 154 (1979) ("Preclusion of . . . nonparties

falls under the rubric of collateral estoppel rather than res

judicata because the latter doctrine presupposes identity between

causes of action. And the cause of action which a nonparty has

vicariously asserted differs by definition from that which he

subsequently seeks to litigate in his own right.") (dictum). We

believe it is highly improbable, however, that the Montana Court,

whose primary interest lay in molding the contours of the related

9

doctrine of collateral estoppel,3 meant categorically to banish

privity a time-honored concept that collapses distinctions

between form and substance in respect to party status from use

in conjunction with principles of res judicata.

This conclusion is firmly supported not only by

respectable precedent but also by practical considerations.

Notwithstanding the Montana dictum, several courts, including

this court, continue to apply res judicata to nonparties when the

circumstances warrant. See, e.g., Aunyx, 978 F.2d at 7-8

(applying res judicata to preclude the alter ego of a corporation

from relitigating); In re Air Crash at Dallas/Fort Worth Airport,

861 F.2d 814, 816-18 (5th Cir. 1988) (applying res judicata to

bar decedent's daughter from relitigating); see also Restatement

(Second) of Judgments 40, 41 (endorsing application of claim

preclusion to nonparties in specified circumstances). In the

same vein, courts continue routinely to formulate res judicata as

a doctrine that bars parties "or their privies" from relitigating

claims. See, e.g., Allen, 449 U.S. at 94; Kale, 924 F.2d at

1165; In re Air Crash, 861 F.2d at 816; United States v. Athlone

Indus., Inc., 746 F.2d 977, 983 (3d Cir. 1984); Lee v. City of

Peoria, 685 F.2d 196, 199 (7th Cir. 1982).

There are also strong practical considerations that

counsel against blind adherence to the Montana dictum. The

3While the doctrines of res judicata and collateral estoppel
have been said to "share a distinct family resemblance," Fiumara

v. Fireman's Fund Ins. Cos., 746 F.2d 87, 90 n.1 (1st Cir. 1984),

they are nonetheless distinct, see Parklane Hosiery Co. v. Shore,

439 U.S. 322, 326 n.5 (1979) (delineating differences).

10

doctrine of res judicata serves many desirable ends, among them

finality and efficiency. See Montana, 440 U.S. at 153. Logic

suggests that the doctrine can achieve its goals only if its

preclusive effects occasionally can reach persons who,

technically, were not parties to the original action. The

pitfalls of a more mechanical rule are obvious; making party

status a sine qua non for the operation of res judicata opens the

door to countless varieties of manipulation, including claim-

splitting, suits by proxy, and forum-shopping.

Finally, reading Montana's dictum as categorically

eliminating res judicata whenever there are technically distinct

parties is at loggerheads with the hoary concept of privity a

concept long since integrated into the legal lexicon and

routinely applied in analogous situations. See, e.g., Stacy v.

Thrasher, 47 U.S. 44, 51 (1848) (applying privity to determine

the binding effect of court judgments); Wallingsford v. Larcon

Co., 237 F.2d 904, 906 (8th Cir. 1956) (applying privity to

determine the extent of the res judicata effect of a prior

judgment). We are loath to assume that the Court intended to

wrest this concept from the jurisprudence of res judicata by a

casual observation, bereft of any meaningful discussion or

explanation. As a rule, appellate courts do not operate in so

Delphic a fashion. See, e.g., United States v. Zapata, 18 F.3d

971, 977 (1st Cir. 1994) (rejecting argument that "an unheralded

dictum" in a Supreme Court opinion altered settled Fourth

Amendment concepts and thereby "worked a sea change in the law").

11

We find this combination of precedent, policy, and

practicalities to be irresistible. Consequently, we hold that,

under federal law, res judicata can sometimes operate to bar the

maintenance of an action by persons who, technically, were not

parties to the initial action (to which preclusive effect is

attributed). Nonetheless, we appreciate that this is a murky

corner of the law and caution the district courts to tread

gingerly in applying res judicata to nonparties.4

2. Privity. The most familiar mechanism for extending
2. Privity.

res judicata to nonparties without savaging important

constitutional rights is the concept of privity a concept that

furnishes a serviceable framework for an exception to the rule

that res judicata only bars relitigation of claims by persons who

were parties to the original litigation. See Meza v. General

Battery Corp., 908 F.2d 1262, 1266 (5th Cir. 1990); see also NLRB

v. Donna-Lee Sportswear Co., 836 F.2d 31, 34 (1st Cir. 1987)

(applying same exception in connection with issue preclusion).

Although privity can be elusive, this case does not

require us to build four walls around it. Here, the res judicata

defense is based not on some exotic doctrinal refinement but on

commonly accepted principles of how privity operates to bring

about nonparty preclusion. The theory underlying defendants'

4The perils of nonparty preclusion are real. Prominent
among them is the prospect that an overly expansive arrangement
of the concept, or too free use of it, may endanger
constitutional rights. See Meza v. General Battery Corp., 908

F.2d 1262, 1266 (5th Cir. 1990) (approving concept but noting the
due process concerns implicit in the ideal that, in general,
every party is entitled to her own "day in court").

12

iteration of the defense is that privity exists (and, therefore,

nonparty preclusion potentially obtains) if a nonparty either

substantially controlled a party's involvement in the initial

litigation or, conversely, permitted a party to the initial

litigation to function as his de facto representative.5 We

accept defendants' theoretical premise, but, after close

perscrutation of the record as a whole, we conclude that neither

stripe of privity exists here.

Substantial Control

The doctrine of res judicata rests upon the bedrock

principle that, for claim preclusion to apply, a litigant first

must have had a full and fair opportunity to litigate his claim.

See Fiumara v. Fireman's Fund Ins. Cos., 746 F.2d 87, 92 (1st

Cir. 1984); see also 18 Wright & Miller, supra, 4449, at 417

(noting "[o]ur deep-rooted historic tradition that everyone

should have his own day in court"); cf. Blonder-Tongue, 402 U.S.

at 328 (commenting that it is sufficient to afford a litigant one

"full and fair opportunity for judicial resolution" of a

particular issue). If a nonparty either participated vicariously

in the original litigation by exercising control over a named

party or had the opportunity to exert such control, then the

nonparty effectively enjoyed his day in court, and it is

appropriate to impute to him the legal attributes of party status

for purposes of claim preclusion. See United States v. Bonilla

5The sobriquet "virtual representation" frequently is used
to describe this type of de facto representation. It fits

equally well under the label "representation by proxy."

13

Romero, 836 F.2d 39, 44 (1st Cir. 1987), cert. denied, 488 U.S.

817 (1988); see also 18 Wright & Miller, supra, 4451, at 430

(arguing that "[p]reclusion is fair so long as the relationship

between the nonparty and a party was such that the nonparty had

the same practical opportunity to control the course of the

proceedings that would be available to a party"); cf. Montana,

440 U.S. at 154 (finding issue preclusion appropriate "when

nonparties assume control over litigation in which they have a

direct financial or proprietary interest and then seek to

redetermine issues previously resolved"); Restatement (Second) of

Judgments 39 (similar).6

Substantial control means what the phrase implies; it

connotes the availability of a significant degree of effective

control in the prosecution or defense of the case what one

might term, in the vernacular, the power whether exercised or

not to call the shots.7 See Rumford Chem. Works v. Hygienic

Chem. Co., 215 U.S. 156, 160 (1909) (holding that the concept of

6We do not think that comment b to section 39, Restatement

(Second) of Judgments 39, comment b, at 383-84 (limiting scope

of section to issue preclusion, not claim preclusion), indicates
that substantial control can never serve as the basis for a
finding of privity when res judicata is in play. Rather, we
interpret the comment as suggesting that substantial control has
somewhat different dimensions for purposes of issue preclusion
than for purposes of claim preclusion a proposition with which
we agree.

7Some courts and commentators have suggested that, at a
minimum, substantial control is the quantum of involvement
expected of a co-party. See, e.g., American Postal Workers

Union, Etc. v. U.S. Postal Serv., 736 F.2d 317, 319 (6th Cir.

1984); 1B Moore, supra, 0.411[6], at 456. With respect, we do

not find this mode of measurement particularly enlightening and,
hence, we decline to install it.

14

substantial control refers to "the right to intermeddle in any

way in the conduct of the case"); Hy-Lo Unit & Metal Prods. Co.

v. Remote Control Mfg. Co., 83 F.2d 345, 350 (9th Cir. 1936)

(stating that substantial control means the "right to participate

and control such prosecution or defense"); Restatement (Second)

of Judgments 39, comment c, at 384 (stating that control, for

purposes of issue preclusion, refers to the right to exercise

"effective choice as to the legal theories and proofs to be

advanced," as well as "control over the opportunity to obtain

review"); see generally 1B Moore, supra, 0.411[6] at 456-58.

As the proverb suggests, a picture is sometimes worth a

thousand words. Along these lines, we suspect that the concept

of substantial control can be illustrated better by examples than

by linguistic constructs. For instance, substantial control has

been found in the case of a liability insurer that assumes the

insured's defense, see, e.g., Iacaponi v. New Amsterdam Cas. Co.,

379 F.2d 311, 312 (3d Cir. 1967), cert. denied, 389 U.S. 1054

(1968), an indemnitor who participates in defending an action

brought against the indemnitee, see, e.g., Bros, Inc. v. W. E.

Grace Mfg. Co., 261 F.2d 428, 430-31 (5th Cir. 1958), and the

owner of a close corporation who assumes control of litigation

brought against the firm, see, e.g., Kreager v. General Elec.

Co., 497 F.2d 468, 471-72 (2d Cir.), cert. denied, 419 U.S. 1041

(1974). Conversely, courts have refused to find substantial

control merely because a nonparty retained the attorney who

represented a party to the earlier action, see Freeman v. Lester

15

Coggins Trucking, Inc., 771 F.2d 860, 864 (5th Cir. 1985); Ramey

v. Rockefeller, 348 F. Supp. 780, 785 (E.D.N.Y. 1972), or because

the nonparty assisted in financing the earlier action, see

Rumford Chem., 215 U.S. at 159-60; General Foods Corp. v.

Massachusetts Dep't of Pub. Health, 648 F.2d 784, 787-88 (1st

Cir. 1981), or because the nonparty testified as a witness in the

earlier action, see Benson & Ford, Inc. v. Wanda Petroleum Co.,

833 F.2d 1172, 1174-75 (5th Cir. 1987); Ponderosa Devel. Corp. v.

Bjordahl, 787 F.2d 533, 536-37 (10th Cir. 1986), or because the

nonparty procured witnesses or evidence, see Carl Zeiss Stiftung

v. V.E.B. Carl Zeiss, Jena, 293 F. Supp. 892, 921 (S.D.N.Y.

1968), modified, 433 F.2d 686 (2d Cir. 1970), cert. denied, 403

U.S. 905 (1971), or because the nonparty furnished his attorney's

assistance, see Cofax Corp. v. Minn. Mining & Mfg. Co., 79 F.

Supp. 842, 844 (S.D.N.Y. 1947).

In the last analysis, there is no bright-line test for

gauging substantial control. The inquiry must be case-specific,

see 1B Moore, supra, 0.411[6] at 458, and fact patterns are

almost endlessly variable. The critical judgment cannot be based

on isolated facts. Consequently, an inquiring court must

consider the totality of the circumstances to determine whether

they justify a reasonable inference of a nonparty's potential or

actual involvement as a decisionmaker in the earlier litigation.

The nonparty's participation may be overt or covert, and the

evidence of it may be direct or circumstantial so long as the

evidence as a whole shows that the nonparty possessed effective

16

control over a party's conduct of the earlier litigation as

measured from a practical, as opposed to a purely theoretical,

standpoint. The burden of persuasion ultimately rests with him

who asserts that control (or the right to exercise it) existed to

such a degree as would warrant invoking nonparty preclusion. See

id.

Applying this standard, there is no principled way in

which it can be said that the Gonzalez plaintiffs substantially

controlled the Rodriguez plaintiffs in regard to the original

litigation. The only facts to which the district court alluded

in ruling that nonparty preclusion loomed involve the similarity

of the complaints at one point in time, the parties' common legal

representation, and the planned use of some discovered materials

in both litigations. In our view, these facts do not begin to

show that the Gonzalez plaintiffs exercised any meaningful degree

of control over the course of the Rodriguez litigation. Nor did

they have either the right or the opportunity to demand such

control.8

Moreover, the record contains much additional evidence

indicating the absence of substantial control. No useful purpose

8Admittedly, some plaintiffs in each camp also belonged to
an informal litigation group that helped to finance the Rodriguez
litigation and disseminated information relevant to members'
claims. Yet this link, whether taken by itself or in combination
with the circumstances noted by the district court, is far too
fragile to support a finding of substantial control. See, e.g.,

Jenkins v. Hartford Acc. & Indem. Co., 733 F.2d 1090, 1091 (4th

Cir. 1984) (holding that limited participation will not bind a
nonparty); General Foods, 648 F.2d at 788 (noting that merely

helping to finance litigation will not bind a nonparty); McKeown

v. Wheat, 231 F.2d 540, 543 (5th Cir. 1956) (similar).

17

would be served by marshalling this evidence. We do, however,

remark the most telling datum: that the Rodriguez plaintiffs

sought to amend their complaint to add those who later became the

Gonzalez plaintiffs a full half-decade after the start of the

litigation a datum strongly suggesting that appellants had no

involvement in the initial five years of litigation. This lack

of participation at the early stages of the Rodriguez litigation

is particularly probative on the issue of substantial control,

for it was during this period that many pivotal strategic

decisions were made, resulting in the virtual forfeiture of some

especially promising causes of action (including the mail fraud

and state-law claims). Obviously, appellant had no chance to

share in this decisionmaking.

Virtual Representation

The defendants also attempt to sustain the application

of res judicata by employing principles of virtual representation

to demonstrate that privity exists. The attempt stalls.

Following defendants' itinerary would require us to imbue the

theory of virtual representation with a much greater cruising

range than either the law or the facts permit.

Although rooted in the eighteenth century law of

estates, virtual representation has only recently emerged as a

vehicle for general nonparty preclusion. See Robert G. Bone,

Rethinking the `Day in Court' Ideal and Nonparty Preclusion, 67

N.Y.U. L. Rev. 193, 206-219 (1992). Its recent jurisprudential

history has been characterized by breadth of initial articulation

18

followed by abrupt retrenchment in actual application. These

pererrations, and the competing centrifugal and centripetal

forces that account for them, are most easily explained by

reference to the due process analyses that must guide any effort

to place the theory into practice. See, e.g., Meza, 908 F.2d at

1266.

The courts that first rode the warhorse of virtual

representation into battle on the res judicata front invested

their steed with near-magical properties. They suggested that

mere identity of interests between party and nonparty warranted

application of the theory and, hence, authorized nonparty

preclusion. See, e.g., Aerojet-General Corp. v. Askew, 511 F.2d

710, 719 (5th Cir.) (holding that, under federal law, "a person

may be bound by a judgment even though not a party if one of the

parties to the suit is so closely aligned with his interests as

to be his virtual representative"), cert. denied, 423 U.S. 908

(1975). Despite such sweeping generalities, courts soon came to

realize that, though virtual representation was not the old gray

mare, neither should it be confused with Pegasus; finding virtual

representation based solely on identity of interests, and then

deploying the theory to justify nonparty preclusion in a broad

spectrum of cases, would threaten the core principles

underpinning the due process equation. See Martin v. Wilks, 490

U.S. 755, 761-62 (1989); Meza, 908 F.2d at 1266. For this

reason, contemporary caselaw has placed the theory of virtual

representation on a short tether, significantly restricting its

19

range. See Benson & Ford, 833 F.2d at 1175 (observing that the

theory of virtual representation must be kept within strict

confines); Pollard v. Cockrell, 578 F.2d 1002, 1008-09 (5th Cir.

1978) (explicitly limiting Aerojet holding); see generally 18

Wright & Miller, supra, 4457 at 355 (Supp. 1994) (discussing

"narrow role" that remains for virtual representation).

The upshot is that, today, while identity of interests

remains a necessary condition for triggering virtual

representation, it is not alone a sufficient condition. More is

required to bring the theory to bear.9 See General Foods, 648

F.2d at 789 (holding that "identity of interests" between a party

and a nonparty "does not bind [the nonparty] to the judgment");

Griffin v. Burns, 570 F.2d 1065, 1071 (1st Cir. 1978) (explaining

that "[m]ere similarity of interests and a quantum of

representation" is insufficient to trigger virtual

representation); Petit v. City of Chicago, 766 F. Supp. 607, 612

(N.D. Ill. 1991) (holding that "identity of interests alone . . .

is not sufficient to yield a finding of privity"); see also

Benson & Ford, 833 F.2d at 1174-76 (declining to find nonparty

preclusion anent an antitrust claim growing out of the same facts

where the nonparty plaintiff testified at the earlier trial and

had the same attorney); see generally 18 Wright & Miller, supra,

9This remains the modern rule despite an occasional dictum
that a determined advocate might read to the contrary. See,

e.g., In re Medomak Canning Co., 922 F.2d 895, 901 (1st Cir.

1990) (suggesting that "privity may be established by
identification of interests, even where representation of those
interests is not authorized").

20

4457, at 500.

To say that a litigant advocating virtual

representation, and seeking thereby to preclude a nonparty's

suit, must show more than an identity of interests is to state

the nature of the problem, not to solve it. Many of the ensuing

questions questions like "how much more?" and "what comprises

`more'?" seem to have no categorical answers. Not

surprisingly, then, the cases in which courts have dealt with the

doctrine, taken as an array, are resistant to doctrinal

rationalization in the form of a single elegant limiting

principle of the "one size fits all" variety. There is no black-

letter rule. See Colby v. J.C. Penney Co., 811 F.2d 1119, 1125

(7th Cir. 1987) (commenting that "no uniform pattern has emerged

from the cases"); Ethnic Employees of Library of Congress v.

Boorstin, 751 F.2d 1405, 1411 n.8 (D.C. Cir. 1985) (noting that

the virtual representation doctrine has a "highly uncertain

scope"); see also Bone, supra, 67 N.Y.U. L. Rev. at 220

(acknowledging absence of clear organizing framework). In the

end, virtual representation is best understood as an equitable

theory rather than as a crisp rule with sharp corners and clear

factual predicates, see 18 Wright & Miller, supra, 4457 at 502,

such that a party's status as a virtual representative of a

nonparty must be determined on a case-by-case basis, see Bonilla

Romero, 836 F.2d at 43.

Although the need for individualized analysis persists,

a common thread binds these variegated cases together: virtual

21

representation has a pronounced equitable dimension. Thus,

notwithstanding identity of interests, virtual representation

will not serve to bar a nonparty's claim unless the nonparty has

had actual or constructive notice of the earlier litigation,10

and the balance of the relevant equities tips in favor of

preclusion. For example, courts have applied the doctrine in

situations in which a nonparty has given actual or implied

consent to be bound by the results in a prior action, see, e.g.,

Boyd v. Jamaica Plain Co-op Bank, 386 N.E.2d 775, 778-81 (Mass.

App. Ct. 1979); see also Benson & Ford, 833 F.2d at 1176 (finding

"tacit agreement[s]" to be bound characteristic of cases applying

virtual representation), or in which there has been "an express

or implied legal relationship in which parties to the first suit

are accountable to non-parties who file a subsequent suit raising

identical issues," Pollard, 578 F.2d at 1008; see also In re

Medomak Canning Co., 922 F.2d 895, 900-01 (1st Cir. 1990)

(holding that creditors were represented by the trustee in

bankruptcy, who had a fiduciary relationship to them), or in

which certain types of familial relationships link parties and

nonparties, see, e.g., Eubanks v. FDIC, 977 F.2d 166, 170 (5th

Cir. 1992) (holding wife bound by outcome of bankrupt husband's

prior action); Stone v. Williams, 970 F.2d 1043, 1058-61 (2d Cir.

10Notice is a very important factor. With the possible
exception of Aerojet, 511 F.2d 710 (a case that has since been

narrowed by the Fifth Circuit), counsel have cited us to no case
in which a court has precluded a nonparty, based on a theory of
virtual representation, where the nonparty had not received
timely notice (actual or constructive) of the initial litigation.

22

1992) (binding decedent's son to a prior ruling concerning

legacies), cert. denied, 113 S. Ct. 2331, or in which courts have

detected tactical maneuvering designed unfairly to exploit

technical nonparty status in order to obtain multiple bites of

the litigatory apple, see, e.g., Petit, 766 F. Supp. at 611-13;

Crane v. Comm'r of Dep't of Agric., 602 F. Supp. 280, 286-88 (D.

Me. 1985); see also 18 Wright & Miller, supra, 4457, at 498-99;

Bone, supra, at 222. Implicit in all these scenarios is the

existence of actual or constructive notice.11

We have considered, and rejected, another possible

common characteristic. Some courts have suggested that adequacy

of representation is also a condition precedent to nonparty

preclusion grounded upon virtual representation. See, e.g.,

Clark v. Amoco Prods. Co., 794 F.2d 967, 973-74 (5th Cir. 1986)

(suggesting that virtual representation "closely resembles the

common law theory of concurrent privity . . . which in turn is

really only [an] adequate representation of interests analysis");

Delta Air Lines, Inc. v. McCoy Restaurants, Inc., 708 F.2d 582,

587 (11th Cir. 1983) (finding no virtual representation because

nonparty was not "adequately represented"); cf. 18 Wright &

Miller, supra, 4457, at 355-58 (1994 Supp.) (suggesting

somewhat cryptically that "adequate litigation" should "remain[]

11To be sure, the Restatement does not require actual notice
when nonparty preclusion stems from a preexistent relationship
between party and nonparty. See Restatement (Second) of

Judgments 41, at 393. We suggest that the requirement is
omitted in such a situation because the formation of the
underlying relationship, in and of itself, embodies what amounts
to constructive notice of all ensuing litigation.

23

the central requirement" for nonparty preclusion based on

principles of virtual representation). Properly viewed, however,

adequacy of representation is not itself a separate and

inflexible requirement for engaging principles of virtual

representation,12 although it is one of the factors that an

inquiring court should weigh in attempting to balance the

equities.13

Based on these benchmarks, the Gonzalez plaintiffs

cannot plausibly be said to have been virtually represented by

the Rodriguez plaintiffs notwithstanding the identity of

interests between the two groups. Here, the equities counsel

very strongly against deploying the theory of virtual

representation. In the first place, there has been no showing

that the Gonzalez plaintiffs had timely notice of the first

12A contrary view would fly in the teeth of the general rule
that, in civil litigation, the sins of the lawyer routinely are
visited upon the client. See, e.g., Link v. Wabash R.R., 370

U.S. 626, 633-36 (1961); Thibeault v. Square D Co., 960 F.2d 239,

242 (1st Cir. 1992). We do not understand why a nonparty who
comes within the doctrinal framework for virtual representation
a framework in which party and nonparty share identical
interests, and that provides for notice and a weighing of
equitable considerations should be treated differently from a
party in this regard.

13We are confident that the cases discussing the importance
of adequate representation can be reconciled with this analysis.
For instance, in McCoy, the prior action was voluntarily

dismissed, not determined on the merits as res judicata requires.

See McCoy Restaurants, 708 F.2d at 587. And in Clark, the court

pointed out that the nonparties whose suit defendant sought to
preclude did not have fair notice of the prior litigation. See

Clark, 794 F.2d at 973-74.

24

suit.14 In the second place, the parties' independence the

inescapable fact that the Rodriguez plaintiffs were not legally

responsible for, or in any other way accountable to, the Gonzalez

plaintiffs weighs heavily against a finding of virtual

representation.15 See Benson & Ford, 833 F.2d at 1176. In the

third place, the lack of a special type of close relationship

between the two groups of plaintiffs (who are, for the most part,

unrelated lambs purportedly fleeced by the same cadre of

unscrupulous sheepherders) also weighs against a finding of

virtual representation. See Eubanks, 977 F.2d at 170. Fourth,

the fact that the Gonzalez plaintiffs never consented, either

explicitly or constructively, to be bound by the verdict in the

earlier action is significant, see Benson & Ford, 833 F.2d at

1176, especially since they actually initiated the later action

while the earlier action was still pending. And, finally, far

from engaging in tactical maneuvering aimed at gaining unfair

advantage, appellants sought to join the Rodriguez action and

were thwarted in the effort because the defendants objected and

the district court, siding with the defendants, barred

14The first explicit reference to any of the Gonzalez
plaintiffs in the papers of the Rodriguez case occurred on April
10, 1987, when the Rodriguez plaintiffs sought leave to add them
as parties. The district court denied this motion on April 27,
1987. See supra p.3. There is nothing to indicate that, prior

thereto, any of the Gonzalez plaintiffs either knew about the
pendency of the Rodriguez action or had retained the Rodriguez
plaintiffs' lawyers as their counsel.

15In this connection, it must be emphasized that the
district court, in the person of Judge Fuste, refused to certify
the Rodriguez case as a class action.

25

appellants' path.

Of course, given the discretionary character of virtual

representation, see 18 Wright & Miller, supra, 4457 at 502, we

would not conclude that a case falls outside the theory's purview

solely because it does not fit snugly into some preconceived

niche or mirror some established fact pattern. But, here, the

sequence of events itself confirms the inappropriateness of

bringing virtual representation to the fore in this case. The

district court, after refusing to certify a class, prohibited

appellants from joining the original suit, yet thereafter

precluded them from prosecuting their own action.16 This

whipsawing placed appellants in an untenable position. Short of

a class action, with all the concomitant safeguards that class

certification portends, see, e.g., Fed. R. Civ. P. 23, we do not

think that the Due Process Clause comfortably can accommodate

such a paradigm. In any event, on the facts of this case the

prospect of depriving these plaintiffs of their day in court

offends our collective sense of justice and fair play.

Consequently, we hold that the theory of virtual representation

cannot be galvanized to preclude appellants from maintaining

their suit.

III. CONCLUSION

We need go no further. Because the appellants were

neither parties to the initial action nor in privity with the

16Though two different judges made these rulings, that fact
is not of legal consequence. We might add parenthetically that
it is also cold consolation to appellants.

26

plaintiffs therein, the district court erred in dismissing their

suit under principles of res judicata.

Reversed and remanded for further proceedings. Costs to

appellants.

27