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Caterpillar Tractor Co. v. International Harvester Co.

May 16, 1941


Appeal from the District Court of the United States for the District of New Jersey; Clark, Judge.

Author: Goodrich

Before BIGGS, MARIS, and GOODRICH, Circuit Judges.

GOODRICH, Circuit Judge.

Plaintiff, Caterpillar Tractor Co., brought this suit against the International Harvester Company alleging the infringement of four patents and praying for money damages and an injunction against further infringement. In its complaint plaintiff alleged that International was the real defendant in a prior suit*fn1 brought by the plaintiff in the Federal District Court in Nevada against Reinharts, Inc., involving the same claims of the same patents here sued upon. Based on admissions in the defendant's answer and certain depositions, plaintiff moved for judgment as prayed for in the complaint. The court below rendered a judgment from which both sides appeal.

The court held that the judgment in the Nevada suit was res judicata as to the validity of the claims of the patents in issue and the defendant's infringement thereof. As to the defenses of laches and estoppel, raised by an amendment to the defendant's amended and supplemental answer, with respect to Turnbull patent No. 1,304,416, the court below held that the Nevada judgment was not conclusive and directed that the plaintiff's right to an accounting*fn2 abide the determination of the issues raised by these defenses. As to two of the other patents,*fn3 Holt No. 1,314,651 and Wickersham No. 1,356,679, the court held that plaintiff was entitled to an accounting, but directed that it be postponed until the determination of the issues raised with respect to the Turnbull patent, or until further order of the court. With respect to the claims in issue of the fourth patent, Whiteacre No. 1,744,516, an accounting was directed as for the Holt and Wickersham patents and the defendant was enjoined from further infringement.

Defendant's Appeal.

The defendant's appeal presents a single clean-cut issue of law and will be considered first. The International Harvester Company was not a party to the suit in Nevada, the effect of which concerns us here. The action in the Nevada suit was brought against a dealer who sold tractors manufactured by International. International, however, admits that it retained counsel to conduct the defense on behalf of the dealer and paid the entire expense of the defense and that the patent department of International cooperated with the counsel so employed in furnishing information and assembling evidence.

International states the question involved in this appeal thus: May a judgment be res judicata as to a person not a party who defended the suit on behalf of the record defendant where such participation was not open and avowed to the knowledge of the plaintiff during the pendency of the suit? This issue, if decided in the affirmative, disposes of International's appeal in this action. Since this court concludes that the answer to the question thus posed is in the affirmative, it is unnecessary to go into the question whether the evidence is sufficient to establish that the defendant openly and avowedly defended the suit in Nevada or to consider the consequences of a finding in the Nevada case to that effect.

The argument for International concedes that if its defense in the Nevada suit had been open and avowed and the plaintiff knew of it, then the judgment therein would bind it by way of collateral estoppel,*fn4 even though it was not actually a party. But, it contends, even though it was in complete charge of the litigation, serving its own interest therein, it is not bound unless its defense was open or the plaintiff knew of it. As a matter of legal principle this is a very difficult position to maintain. The general principle back of the rules of res judicata has received recent and clear statement by the Supreme Court. "Public policy dictates that there be an end of litigation; that those who have contested an issue shall be bound by the result of the contest; and that matters once tried shall be considered forever settled as between the parties." Baldwin v. Iowa State Traveling Men's Association, 1931, 283 U.S. 522, 525, 51 S. Ct. 517, 518, 75 L. Ed. 1244. A litigant is to have his day in court, but only one day in court, against another. The defendant here is in the position of asking for two days in court if he successfully masked his participation upon his first appearance. That the doctrinal basis of res judicata is living law and not archaic formula is shown in its authoritative extension in recent years. American Surety Co. v. Baldwin, 1932, 287 U.S. 156, 53 S. Ct. 98, 77 L. Ed. 231, 86 A.L.R. 298; Davis v. Davis, 1938, 305 U.S. 32, 59 S. Ct. 3, 83 L. Ed. 26, 118 A.L.R. 1518; Stoll v. Gottlieb, 1938, 305 U.S. 165, 59 S. Ct. 134, 83 L. Ed. 104; Treinies v. Sunshine Mining Co., 1939, 308 U.S. 66, 60 S. Ct. 44, 84 L. Ed. 85. An argument which seeks to establish a rule directly contrary to this broad principle must justify itself pretty clearly to be successfully maintained.

If Caterpillar had lost in the Nevada litigation and International were now endeavoring to take advantage of the rule of res judicata against the unsuccessful plaintiff, then the open and avowed rule would be applicable. The reason is that to allow the secret defendant to have the advantage of the rule would be "to force a plaintiff to prosecute to the utmost suits which, for personal or pecuniary reasons, he wishes to let slide." 39 Columbia Law Review 1251, 1252. Such was the situation in the litigation in this circuit culminating in the decision in Jefferson Electric Light, Heat & Power Company v. Westinghouse Electric & Manufacturing Company, 3 Cir., 1905, 139 F. 385. The defendant in that case sought to conceal his identity throughout the original litigation and then subsequently to have the benefit of the rule of res judicata when the plaintiff lost. We do not question the correctness of that decision.

But it does not follow that because the defendant's participation must be known in order for him to have the benefit of the judgment, that his participation must be known in order that he be bound by it. The open and avowed rule has frequently been stated, but, as pointed out by the court below, most frequently in cases like that of the Jefferson Electric decision cited above. While in more cases than not the binding effect of a judgment is mutual, there is nothing in the nature of things which requires mutuality if fairness demands otherwise. Lip service to the doctrine of mutuality in matters of specific performance distorted the law for years until a notable paper by Dean Ames laid it low. See James B. Ames, Mutuality in Specific Performance, 3 Columbia Law Review 1 (1903).

We conclude that both fairness to the parties involved and the general public policy back of the rules of res judicata preclude the defendant in this case from relitigating the issues already contested and settled in the Nevada action. This view finds support in the thorough discussion by the Court in Universal Oil Products Co. v. Winkler-Koch Engineering Co., D.C., N.D., Illinois, 1939, 27 F.Supp. 161 (commented upon in an excellent note in 39 Columbia Law Review 1251) and the succinct statement of the rule in E. W. Bliss Co. v. Cold Metal Process Co., D.C., N.D., Ohio, 1940, 1 F.R.D. 193, 196: "A party should not be estopped as against an adversary whom he never knew; but a secret adversary should be estopped if subsequently it is shown that he had made himself an adversary." The issue was squarely met and thoughtfully considered by the court below. We concur with the conclusion there reached.*fn5

An interesting intellectual question is presented concerning the theoretical basis for the effect to be given the judgment of a federal court in Nevada in a federal court in New Jersey. On the one hand it may be urged that the question is essentially one of faith and credit. The extent of the collateral consequences of a judgment is a matter of law and, in the absence of a statute, judge made law.The law must be the law of some sovereignty for nowadays we all reject the notion of law characterized by Mr. Justice Holmes as "a brooding omnipresence in the sky." Since Erie R.Co. v. Tompkins, 1938, 304 U.S. 64, 58 S. Ct. 817, 822, 82 L. Ed. 1188, 114 A.L.R. 1487, there is certainly very limited scope for a "general common law" of the United States. Therefore the question of the effect of the prior judgment is to be determined in the first instance by the law of Nevada where the court rendering it sat.A judgment rendered by a federal court is entitled to the same faith and credit as one rendered by the court of the state where it is sitting. Hancock National Bank v. Farnum, 1899, 176 U.S. 640, 20 S. Ct. 506, 44 L. Ed. 619; Stoll v. Gottlieb, 1938, 305 U.S. 165, 59 S. Ct. 134, 83 L. Ed. 104. While the constitutional mandate of full faith and credit (Art. IV ยง 1) is applicable to the states only, the federal statute*fn6 requires faith and credit "in every court within the United States." The credit which this judgment must receive is that to which it is entitled "by law or usage" in the courts of the place where rendered. That is a matter of the common law of Nevada, but is a matter which has not, so far as we have been able to find, been dealt with by Nevada courts. In the absence of contrary local decisions the rule set out above is the one we believe to be sound and to which we give our approval.

On the other hand, the matter here is one between two courts of the same sovereignty, the United States of America. If one federal court failed to give effect to the judgment of another federal court the Supreme Court of the United States, as the head of the judicial system of the United States would compel it to do so because "they are many members yet but one body". An analogy is found in the conclusive effect in a federal court given to the fact finding of a federal administrative commission. Sunshine Anthracite Coal Co. v. Adkins, 1940, 310 U.S. 381, 60 S. Ct. 907, 84 L. Ed. 1263. No decisive language on the point has been found though one may refer, in passing, to the opinion of Mr. Justice Matthews in Embry v. Palmer, 1882, 107 ...

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