Marcel and Lucky litigated use of the GET LUCKY and LUCKY marks three times. The first lawsuit, in 2001, resulted in a release. The second lawsuit, in 2005, revealed in early motion practice that the parties disagreed as to the scope of the release. However, Lucky did not assert its interpretation of the release as a defense at trial. Now, in the third lawsuit, Lucky asserts its interpretation of the release.
The issue for the Second Circuit is whether claim preclusion encompasses defense preclusion, and if so, is Lucky precluded here from asserting a defense relating to the release, which defense it could have asserted in the 2005 lawsuit, but did not.
As to whether claim preclusion can prohibit defenses:
We are aware of no authority unequivocally prohibiting defenses from being
subject to the principle of claim preclusion. Lucky Brand, in essence
acknowledging this dearth of authority, depends almost entirely on language from
a leading treatise, Br. of Appellees at 38, which indicates that “[i]t is generally
assumed that the defendant may raise defenses in the second action that were not
raised in the first, even though they were equally available and relevant in both
actions.” Wright & Miller, 18 Fed. Prac. & Proc. Juris. § 4414 (3d ed. 2018)
[hereinafter, “Wright & Miller”]. But, Wright & Miller speaks only of a “general
rule” that departs from the standard we identified in Clarke. Id. Moreover, Wright
& Miller acknowledges that, in certain circumstances, “[d]efendant preclusion
should be seriously considered,” and that perhaps the “best rule” would at times
allow for the preclusion of defenses that could have been previously asserted. Id
Noting that issue preclusion can be deployed both offensively and defensively, the Court observed that the same arguments in favor of offensive and defensive use of issue preclusion (namely, judicial economy arguments), apply to claim preclusion as well. Thus, claim preclusion will act to bar asserting defenses that could have been asserted by a defendant against this plaintiff, previously.