Hara v. Reichert

287 Neb. 577

843 N.W.2d 812

Sherry Hara, appellant,

v.Russell Reichert, appellee.

No. S–13–073

Supreme Court of Nebraska.

Filed March 7, 2014.

Appeal from the District Court for Scotts Bluff County: Leo Dobrovolny, Judge. Affirmed.

Todd Morten, of Island & Huff, P.C., L.L.O., for appellant.

Robert M. Brenner, of Robert M. Brenner Law Office, Poway, for appellee.

Heavican, C.J., Wright, Connolly, Stephan, McCormack, Miller–Lerman, and Cassel, JJ.

Syllabus by the Court

1. Judgments: Res Judicata: Collateral Estoppel: Appeal and Error. The applicability of claim and issue preclusion is a question of law. On a question of law, an appellate court reaches a conclusion independent of the court below.

2. Judgments: Res Judicata. Claim preclusion bars the relitigation of a claim that has been directly addressed or necessarily included in a former adjudication if (1) the former judgment was rendered by a court of competent jurisdiction, (2) the former judgment was a final judgment, (3) the former judgment was on the merits, and (4) the same parties or their privies were involved in both actions.

3. Res Judicata. Claim preclusion bars relitigation not only of those matters actually litigated, but also of those matters which might have been litigated in the prior action.

4. Res Judicata. Claim preclusion rests on the necessity to terminate litigation and on the belief that a person should not be vexed twice for the same cause.

5. Judgments: Collateral Estoppel. Issue preclusion bars the relitigation of a finally determined issue that a party had a prior opportunity to fully and fairly litigate. Issue preclusion applies where (1) an identical issue was decided in a prior action, (2) the prior action resulted in a final judgment on the merits, (3) the party against whom the doctrine is to be applied was a party or was in privity with a party to the prior action, and (4) there was an opportunity to fully and fairly litigate the issue in the prior action.

6. Collateral Estoppel. Issue preclusion applies only to issues actually litigated.

7. Collateral Estoppel. Issue preclusion protects litigants from relitigating an identical issue with a party or his privy and promotes judicial economy by preventing needless litigation.

8. Res Judicata: Collateral Estoppel. While the doctrines of claim and issue preclusion are similar and serve similar purposes, they are distinct.

9. Small Claims Court: Judgments. A small claims court judgment is in fact a “judgment.”

10. Small Claims Court. The purpose of small claims court is to provide a prompt and just determination in an action involving small amounts while expending a minimum amount of resources.

11. Small Claims Court: Res Judicata. Claim preclusion applies to small claims court judgments.

Connolly, J.

Sherry Hara filed a complaint for declaratory judgment alleging that money she had received from Russell Reichert was a gift and not a loan. Based on a prior small claims court judgment, the districtcourt concluded that Hara's action was barred by both claim preclusion and issue preclusion and dismissed her complaint. Because we determine that claim preclusion applies and its elements are met, we affirm.

BACKGROUND

Reichert originally sued Hara in Dundy County Small Claims Court for $3,500. Reichert claimed that he had loaned Hara $4,000 to help her buy a car. At the time of the transaction, Reichert and Hara were dating. Hara did not deny receiving the money, but she claimed that Reichert had given her the money as a gift. After a bench trial, the small claims court found that the transaction was a loan and entered judgment for Reichert.

Hara appealed the small claims court judgment to the county court for Dundy County. While the appeal was pending, Hara filed a complaint for declaratory judgment in the Scotts Bluff County Court, seeking a declaration that the $4,000 was a gift rather than a loan and for the court to find that the small claims court judgment “[had] been satisfied in full.” Hara later dismissed her pending appeal, apparently for financial reasons. Reichert moved to dismiss Hara's complaint in the Scotts Bluff County Court, which the court granted. Hara then filed a complaint for declaratory judgment in the district court for Scotts Bluff County, again seeking a declaration that the $4,000 was a gift rather than a loan and for the court to find that the small claims court judgment “[had] been satisfied in full.”

Reichert again moved to dismiss Hara's complaint, which the court granted. The court reasoned that both claim preclusion and issue preclusion applied and barred Hara's action. The court recognized that Henriksen v. Gleason¹ stated that, given the procedural differences in small claims court, “it is inappropriate to give any issue preclusive effect to any small claims court judgment in a later proceeding brought in county or district court.” ² But the court found Henriksen distinguishable because the claim here was the exact same claim and Henriksen made that statement only as to issue preclusion, not claim preclusion. The court also reasoned that if Henriksen were read broadly, then “within the statute of limitations for the particular cause of action, a successful litigant in small claims [court] could not rely on [that court's] judgment.” The court dismissed Hara's complaint, and she appealed.

ASSIGNMENT OF ERROR

Hara assigns, restated, that the district court erred in concluding that her complaint was barred by both claim preclusion and issue preclusion.

STANDARD OF REVIEW

The applicability of claim and issue preclusion is a question of law.³ On a question of law, we reach a conclusion independent of the court below.⁴

ANALYSIS

Relying on Henriksen,⁵ Hara argues that a small claims court judgment cannot be given any preclusive effect, under either claim preclusion or issue preclusion, because of the procedural limitations of small claims court. We agree that under Henriksen, issue preclusion does not apply to small claims court judgments, and that the district court therefore erred in concluding that issue preclusion barred Hara's suit. But Henriksen speaks only to issue preclusion and not claim preclusion. Because claim preclusion applies to small claims court judgments, and because all of its elements are met here, we affirm the district court's dismissal.

Principles of Preclusion

In the past, we have referred to claim preclusion and issue preclusion as res judicata and collateral estoppel.⁶ Courts and commentators have moved away from that terminology and now use the terms claim preclusion and issue preclusion.⁷ Put simply, they are more clear and descriptive.⁸

Claim preclusion bars the relitigation of a claim that has been directly addressed or necessarily included in a former adjudication if (1) the former judgment was rendered by a court of competent jurisdiction, (2) the former judgment was a final judgment, (3) the former judgment was on the merits, and (4) the same parties or their privies were involved in both actions.⁹ The doctrine bars relitigation not only of those matters actually litigated, but also of those matters which might have been litigated in the prior action.¹⁰ The doctrine rests on the necessity to terminate litigation and on the belief that a person should not be vexed twice for the same cause.¹¹

Issue preclusion bars the relitigation of a finally determined issue that a party had a prior opportunity to fully and fairly litigate.¹² Issue preclusion applies where (1) an identical issue was decided in a prior action, (2) the prior action resulted in a final judgment on the merits, (3) the party against whom the doctrine is to be applied was a party or was in privity with a party to the prior action, and (4) there was an opportunity to fully and fairly litigate the issue in the prior action. ¹³ Issue preclusion applies only to issues actually litigated. ¹⁴ Issue preclusion protects litigants from relitigating an identical issue with a party or his privy and promotes judicial economy by preventing needless litigation.¹⁵

While the doctrines are similar and serve similar purposes, they are distinct.¹⁶ A close examination of their elements shows this to be true. Claim preclusion looks to the entire cause of action as opposed to a single issue. Claim preclusion does not require a full and fair opportunity to litigate, whereas issue preclusion does. Claim preclusion bars litigation of matters not actually litigated, whereas issue preclusion applies only to issues actually litigated. Claim preclusion also applies only between the parties (or their privies) who were involved in the prior action, ¹⁷ while issue preclusion may be used by a nonparty in a later action, either offensively or defensively.¹⁸

An example of the doctrines and how they might interact in a hypothetical situation might be helpful. Take, for example, a car (driven by Adam), which collides with two other cars (driven by Brody and Carl). Brody sues Adam, on a theory of negligence, for damage to his car. Adam denies that he was negligent. A jury finds otherwise and final judgment is entered against Adam. Brody cannot later maintain a separate suit, on the same facts, for additional damage to items in his car's trunk. Claim preclusion would bar the suit. Now Carl sues Adam, also on a theory of negligence, for damage to his car. Claim preclusion would not apply, because Carl was not involved in the prior adjudication. But assuming the same essential facts, issue preclusion would prevent Adam from contesting his negligence; that issue was actually and finally decided in the prior suit between Adam and Brody.

Preclusion for Small Claims Court Judgments

Hara's argument—that neither claim preclusion nor issue preclusion applies to a small claims court judgment—rests entirely on Henriksen v. Gleason.¹⁹ In that case, Jim Gleason sued Greg Henriksen in small claims court for failing to pay money under a contract. The small claims court entered a default judgment for...