After a complicated procedural history including numerous garnishments, one of which ended with a finding of no coverage following appeal, the Eastern District of the Missouri Court of Appeals refused to apply collateral estoppel and res judicata principles to yet another garnishment filed by the plaintiffs against American Family Mutual Insurance Company. The case was decided on March 14, 2017 by a three-judge panel of the Eastern District and is currently subject to rehearing or transfer to the Supreme Court of Missouri.
A class of plaintiffs filed suit against American Family’s insured, Global Bizdimensions, LLC, in January 2008 for alleged violations of the Telephone Consumer Protection Act. Global tendered the suit to American Family, which denied coverage. Following the denial, the plaintiffs entered into a Section 537.065 agreement providing for judgment to be entered against Global for just under $5 million. The plaintiffs then filed a Rule 90 garnishment against American Family seeking to satisfy the judgment from the proceeds of three successive policies in effect during the periods when unsolicited faxes were sent. That garnishment was dismissed by the plaintiffs without prejudice.
Near the end of 2010, the plaintiffs filed a “Second Garnishment” against American Family. The circuit court denied a summary judgment motion by the company and, in August 2011, entered judgment against American Family for the full amount of the underlying judgment plus post-judgment interest. On appeal by American Family, the Eastern District concluded the company’s coverage position was correct and reversed the judgment against the company. That case was Olsen v. Siddiqi, 371 S.W.3d 93 (Mo.App.2012) (“Olsen I”). The case was remanded to the circuit court, which entered judgment in American Family’s favor in the Second Garnishment in August 2012.
One year later, the Supreme Court of Missouri decided Columbia Cas Co. v. HIAR Holding, LLC, 411 S.W.3d 258 (Mo.banc 2013). There, the court addressed similar TCPA claims arising from an insured sending unsolicited faxes and concluded, apparently on policy terms materially the same as American Family’s, that the claims were covered. That ruling in HIAR Holding was plainly different from the ruling in favor of American Family in Olsen I.
Thereafter, in August 2014, the plaintiffs filed a “Third Garnishment” against American Family. Following additional procedural wrangling, including another appeal – Olsen v. Global Biz Dimensions, LLC, 462 S.W.3d 886 (Mo.App.2015) (“Olsen II”) – the plaintiffs and American Family filed summary judgment motions in the Third Garnishment. American Family argued it was entitled to judgment because the Eastern District “had concluded in Olsen I that there was no coverage under American Family’s insurance policies issued to Global, and Plaintiffs were barred from re-litigating the issue under the doctrines of collateral estoppel and res judicata despite the Missouri Supreme Court’s subsequent decision in HIAR.” The circuit court denied American Family’s motion and granted summary judgment to the plaintiffs, and American Family appealed.
In its decision of March 14, the Eastern District determined that, despite the parties in the Third Garnishment being the same as the parties in the Second Garnishment where judgment was entered in favor of American Family following appeal, and despite the facts and coverage issues being the same in both cases, traditional principles of collateral estoppel and res judicata did not prevent the plaintiffs from having another bite at the apple. The court reasoned, “[W]here a situation is vitally altered between the time of the first judgment and the second judgment, such as when a judicial declaration intervening between the two proceedings substantially changes the applicable legal rules, the prior determination is not conclusive and the doctrine of collateral estoppel is inapplicable.” According to the court, this principle has been “referred to as the ‘change in the law’ exception to the doctrine of collateral estoppel.” Thus, the court determined that the law had changed as a result of the HIAR Holding decision, which came after the judgment in favor of American Family in the Second Garnishment, collateral estoppel did not bar the plaintiffs from trying again and actually recovering from American Family in the new and separate Third Garnishment. But for the so-called “change in the law” exception, it appeared collateral estoppel absolutely should have applied to prevent the plaintiffs from doing just that.
Turning to American Family’s res judicata argument, the court applied much the same analysis. It appeared on the surface that all elements of res judicata were met. However, the court focused on the requirement that there be an “identity of the cause of action” at issue with the case previously decided. Although the court did not point to any prior cases recognizing a “change in the law” exception for res judicata, it gave the issue the same treatment by concluding the test as to the identity of the cause of action contemplates “the underlying facts combined with the law.” Because the law had changed with the HIAR Holding decision, the court reasoned, there was no identity of the cause of action as between the Second Garnishment and Third Garnishment. As a result, the plaintiffs were permitted another shot at recovery against American Family even though they previously lost in a final judgment on the merits.
This is a surprising decision that seems to fly in the face of long-established and fundamental principles of law, and it will not be a surprise if the Supreme Court of Missouri accepts transfer of the case. Also, it is notable that the Supreme Court has been critical of arguments made by insurers on various issues that, in the court’s eye, would allow the insurance company a second chance on an issue already decided. Such was the case in Schmitz v. Great American Assur. Co., 337 S.W.3d 700 (Mo.banc 2011), where the court refused to allow a reasonableness challenge by the insurer because “all insurers would receive ‘two bites of the apple’—once when the trial court determines liability and damages and once when the equitable garnishment court determines reasonableness.” If the decision by the Eastern District in the case against American Family stands, it remains to be seen whether a defendant or insurer would ever be able to take advantage of the so-called “change in the law” exception to collateral estoppel.