905 F.3d 421
6th Cir.2018Background
- In a Michigan wrongful-death trial (Henderson action), a jury found Watermark negligent for a nursing-home patient’s death and returned a $5.08M verdict; the trial court entered judgment and denied post-trial relief.
- Watermark settled with the estate for $3.65M, then the parties jointly moved to set aside the judgment; the trial court granted the motion and dismissed the action with prejudice.
- Watermark sued Morrison (kitchen services contractor) alleging (1) contractual indemnification under their contract and (2) breach of contract for failing to secure a kitchen cabinet that allegedly allowed access to detergent.
- Morrison moved to dismiss under Rule 12(b)(6), asserting issue preclusion based on the jury verdict in the Henderson action; the district court dismissed both claims on collateral-estoppel grounds.
- The Sixth Circuit addressed whether a judgment set aside upon settlement may have preclusive effect, whether that rule should be applied retroactively here, and whether each of Watermark’s two claims is barred.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a judgment set aside upon settlement can have preclusive (issue-preclusion) effect | A judgment that was set aside pursuant to settlement is not a valid/final judgment and cannot preclude later claims | A prior adverse judgment (even if set aside after settlement) is sufficiently firm to preclude relitigation of issues | A judgment set aside as a condition of settlement can be given preclusive effect under Michigan law; courts may treat such prior adjudications as sufficiently firm |
| Whether this rule should be applied retroactively to this case | Watermark settled and relied on belief that vacatur would avoid preclusion; therefore rule should be applied only prospectively | The rule is an interpretation of undecided law, not a new overruling; Michigan presumes retroactive application | The court applies the rule retroactively; Michigan law favors retroactivity unless a decision clearly establishes a new rule |
| Application of issue preclusion to Watermark’s contractual-indemnification claim | Indemnity claim should proceed because the Henderson judgment was set aside | Indemnity claim is barred because the jury already found Watermark negligent and the contract disclaims indemnity for Watermark’s negligence | Indemnification claim is precluded: jury’s finding that Watermark’s negligence caused the death bars Watermark’s contractual claim for indemnity |
| Application of issue preclusion to Watermark’s breach-of-contract claim | Breach claim is distinct from indemnity and does not rely on overcoming Watermark’s negligence finding; thus not precluded | Breach claim is precluded because it depends on factual questions (e.g., whether Morrison left cabinet unlocked) litigated in Henderson | Breach claim is not precluded: the Henderson jury determined Watermark’s negligence but did not decide whether Morrison breached its contractual duty to exercise ordinary care |
Key Cases Cited
- Monat v. State Farm Ins. Co., 677 N.W.2d 843 (Mich. 2004) (sets Michigan issue-preclusion elements and permits defensive collateral estoppel without mutuality)
- Sentinel Trust Co. v. Universal Bonding Ins. Co., 316 F.3d 213 (3d Cir. 2003) (judgments set aside on settlement can still have preclusive effect if sufficiently firm)
- Chemetron Corp. v. Bus. Funds, Inc., 682 F.2d 1149 (5th Cir. 1982) (recognized preclusive effect of judgments vacated upon settlement)
- Employees Own Fed. Credit Union v. City of Defiance, 752 F.2d 243 (6th Cir. 1985) (state-court rulings without formal entry can nonetheless have preclusive effect if sufficiently firm)
- Birgel v. Bd. of Commr’s of Butler Cty., 125 F.3d 948 (6th Cir. 1997) (same principle regarding sufficiency of firmness for preclusion)
- Erebia v. Chrysler Plastic Prods. Corp., 891 F.2d 1212 (6th Cir. 1989) (vacatur for error generally removes preclusive effect)
- United States v. Munsingwear, 340 U.S. 36 (1950) (vacatur where mootness on appeal deprives party of opportunity to litigate)