Business Litigation I SEPTEMBER 18, 2019

Wage & Hour Victory: Winning Dismissal of All Claims by Summary Judgment Based on the Doctrine of Res Judicata

Carl and Curt worked as freight brokers at my client, a Detroit-based logistics provider (“Company”). In connection with their employment, both Carl and Curt signed written employment agreements that prohibited them from competing against Company or soliciting Company’s customers. 

In 2016, Carl and Curt abruptly left Company and began working for a direct competitor. I filed a lawsuit on behalf of Company against Carl and Curt in the Oakland County Circuit Court on behalf of Company for breach of contract. Carl and Curt both hired the same attorney, who promptly approached me with settlement offers. After some negotiation, we all agreed to enter into a stipulated order dated December 14, 2016 under which Carl and Curt both paid Company a specific amount of money and also agreed to not compete against Company or solicit Company’s customers for a period of 18 additional months. To conclude the Oakland County Circuit Court case, we agreed to a stipulated order of dismissal that provided as follows: 

Upon stipulation of the parties, subject to the terms of the Court’s Order dated December 14, 2016, all claims and counterclaims raised or which could have been raised by all parties in this case are dismissed with prejudice, and without costs to any party, subject to reinstatement.” 

The Oakland County Circuit Court entered that order and dismissed the case. We expected that we were finished litigating with Carl and Curt. 

Less than a month later, Carl and Curt filed a new lawsuit against Company in the United States District Court for the Eastern District of Michigan–using the same attorney they engaged in the Oakland County Circuit Court case. In the new case, Carl and Curt asserted claims alleging the Company violated federal wage and hour laws and therefore owed them hundreds of thousands of dollars of overtime and back pay, plus attorney fees, interest, and costs.

On behalf of Company, we filed a motion for summary judgment seeking dismissal of all new claims asserted by Carl and Curt based on the doctrine of res judicata. A Latin phrase meaning “a matter already judged,” res judicata is conceptually similar to the “double jeopardy” defense applicable in the context of criminal procedure.

In Michigan, res judicata “bars a second, subsequent action when (1) the prior action was decided on the merits, (2) both actions involve the same parties or their privies, and (3) the matter in the second case was, or could have been, resolved in the first.” Adair v. State, 470 Mich. 105, 121; 680 N.W.2d 386 (2004). “Michigan courts have broadly applied the doctrine of res judicata. They have barred, not only claims already litigated, but every claim arising from the same transaction that the parties, exercising reasonable diligence, could have raised but did not.” Sewell v. Clean Cut Mgmt., Inc., 463 Mich. 569, 575; 621 N.W.2d 222 (2001).  

“That latter aspect of claim preclusion also bars claims that a party could have brought as counterclaims in the first action.” Reid v. Thetford Twp., 377 F. Supp. 2d 621, 625 (E.D. Mich. 2005).

Importantly here, “[a] voluntary dismissal with prejudice acts as res judicata with respect to all claims that could have been raised in the first action.” Limbach v. Oakland Cty. Bd. of Cty. Rd. Comm’rs, 226 Mich. App. 389, 395-396; 573 N.W.2d 336 (1997). 

The federal court initially declined to rule on our summary judgment motion, indicating it wanted the parties to conduct discovery. After the close of discovery, we moved again for summary judgment based on the doctrine res judicata. In a 21-page Opinion and Order, the court granted our motion and dismissed all claims brought by Carl and Curt. The court ruled that, because those claims could have been brought as counterclaims in the initial Oakland County Circuit Court case, res judicata barred Carl and Curt from bringing those claims again after agreeing that “all claims and counterclaims raised or which could have been raised by all parties in this case are dismissed with prejudice, and without costs to any party, subject to reinstatement.”

Carl and Curt are appealing.