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If The Claim is Precluded, Speak Now or Forever Hold Your Peace

By William Peacock, Esq. on March 15, 2013 | Last updated on March 21, 2019

Georgia Pacific makes paper towels and paper towel accessories. It's a glamorous life -- especially when you design some spiffy new automatic paper towel dispenser that uses its own proprietary premium paper towels. Of course, premium paper towels come at a premium price, and when that happens, other companies, like von Drehle, rush in to fill the cheap-paper void.

The inevitable result of such competition is litigation. GP accused VD of contributory trademark infringement. Shortly thereafter, they also attempted to enforce their rights against numerous other manufacturers in other venues and jurisdictions. The VD litigation proceeded through summary judgment in their favor, a Fourth Circuit reversal, and a remand before von Drehle sought to amend their answer to reflect preclusion issues.

The problem is, VD had known about the Myers case that provided the preclusion argument for months (they attended the trial) and said nothing. In the meantime, their own case went to the Fourth Circuit and back before they got around to making the argument.

The district court rightfully ruled that the preclusion argument was waived by not making it sooner. The case went to trial and the jury ruled in GP's favor.

And then the unthinkable happened. The district court reversed their earlier ruling post-trial, allowed the amended answer, and ruled in VD's favor.

What caused the change of heart? Another case, Four-U, was decided against GP and VD argued that the new decision renewed the preclusion argument. The trial court agreed, even though the new decision was not based on the merits -- it was preclusion based on that same original Myers case. The court also stated that it would have raised preclusion sua sponte either way, even without the new-ish decision.

In reversing the trial court's flip-flopping decision, the Fourth Circuit referred to the Four-U case as a "straw man" preclusion argument. Preclusion was waived by VD when they failed to bring the first court's decision before the court during months of expensive litigation. A new court decision, based on the same case precedent, doesn't make that prior waiver invalid, or VD's actions less egregious.

As for the sua sponte argument, sua sponte preclusion arguments should be a rarity, done only when a court finds that special circumstances apply, such as when "a court is on notice that it has previously decided the issue presented in another case and, by raising the issue on its own motion in a different case, thereby may avoid unnecessary judicial waste."

Judicial waste was already guaranteed here -- VD had waited for an appeal to run through the circuit, and for the case to get kicked back to the lower court, before finally bringing the preclusion argument. There was no "waste" justification for bringing such an argument sua sponte.

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