On Wednesday, May 14, 2020, the United States Supreme Court unanimously held that the doctrine of defense preclusion does not apply in a case between two parties when the earlier case between the parties involved different marks and different conduct occurring at different times. Lucky Brand Dungarees Inc. v. Marcel Fashions Group Inc., Case No. 18-1086, ___ U.S. ___ (May 14, 2020).
Lucky Brand Dungarees, Inc. (“Lucky Brand”) sells jeans and other clothing, as does Marcel Fashions Group, Inc. (“Marcel”). Both use the word “lucky” as a component of their marks. Lucky Brand began selling LUCKY BRAND clothing (and also began using other marks that include the term “lucky” with clothing) in 1990, four years after Marcel obtained a federal registration for use of the mark GET LUCKY for use with clothing. The companies have been litigating almost ever since.
In 2003, the parties signed a settlement agreement in which Lucky Brand agreed to stop using the phrase “get lucky” and Marcel released any claims against Lucky Brand for Lucky Brand’s use of its own “lucky” marks.
Two years later, Lucky Brand sued Marcel for infringing its logos and Marcel counterclaimed, alleging that Lucky Brand violated the parties’ settlement agreement and infringed Marcel’s rights by using both “get lucky” and Lucky Brand’s marks together. Lucky Brand raised the defense of release in a motion to dismiss and later in its answer to the counterclaims, but did not pursue those defenses. Lucky Brand was later found to have violated the settlement agreement, was enjoined from using the GET LUCKY mark, and was found to have infringed Marcel’s GET LUCKY mark by using the phrase alongside Lucky Brand’s marks.
In 2011, Marcel sued Lucky Brand, accusing it of violating the 2005 judgment and infringing Marcel’s mark through Lucky Brand’s use of its marks that include the term “lucky.” Marcel asked the court to enjoin Lucky Brand from using any marks containing the word “lucky.”
Marcel prevailed before the district court, but the U.S. Court of Appeals for the Second Circuit vacated and remanded the case because it determined that the infringements at issue were different from the infringements at issue in the 2005 case, and the 2005 injunction pertained only to Lucky Brand’s use of “get lucky,” not its use of its own marks. On remand before the district court, Lucky Brand argued that Marcel had released its claim in the 2003 settlement agreement. Marcel argued that Lucky Brand was precluded from raising this defense because it failed to pursue it in the 2005 litigation. Lucky Brand prevailed on this issue, but the Second Circuit vacated and remanded again, determining that the doctrine of “defense preclusion” prohibited Lucky Brand from raising the defense until 2011. In essence, the Second Circuit reasoned that a defendant should be precluded from raising an unlitigated defense that it should have raised earlier in a previous action involving an adjudication on the merits involving the same parties when the defense was or could have been asserted in the prior action and the court determines that preclusion of the defense is appropriate. Because the Second Circuit found that all elements had been met, it vacated the judgment of the district court.
The Supreme Court granted certiorari to resolve differences among the circuits regarding when, if ever, claim preclusion applies to defenses raised in a later suit.
Claim preclusion is a doctrine that prevents parties from raising issues that could have been raised and decided in a prior action. If a second action raises the same claim as an earlier action, the earlier judgment prevents litigation of all claims and defenses previously available to the parties. However, if the second suit involves a new claim, the parties may raise claims and defenses that were omitted from the first suit, even if equally relevant.
In this case, because the 2005 action and the 2011 action were based on different conduct, involved different marks, and occurred at different times, they did not share a common nucleus of operative facts. Therefore, Lucky Brand was not precluded from raising defenses in the second action that it could have chosen to pursue in the first action. The 2005 action involved Lucky Brand’s use of the phrase “get lucky” whereas the 2011 action involved only Lucky Brand’s use of its own “lucky” marks. Additionally, the conduct at issue in the 2011 action involved only conduct that occurred after the 2005 action had ended. Claim preclusion (and, by extension defense preclusion) generally cannot apply to claims based on events that occur subsequent to the filing of the initial complaint. For the same reason that Marcel’s 2011 claims were not barred by the 2005 action, Lucky Brand’s 2011 defenses were not barred by the 2005 action. In short, because the 2011 action involved different marks, different legal theories, and conduct occurring at different times, claim preclusion (or defense preclusion) could not prevent Lucky Brand from asserting its settlement agreement defense in the 2011 action.
Accordingly, the Court reversed the judgment of the Second Circuit and remanded the case for proceedings consistent with the Court’s opinion.