Declaratory Judgments and Claim Preclusion

A panel of the First Circuit Court of Appeals recently reversed a district court finding that a deceptive trade practices claim against an insurance company was barred by res judicata because the claim could have been brought in the plaintiff's previously obtained declaratory judgment action.  The plaintiff argued that the district court erred by not recognizing that the normal rules of claim preclusion do not apply when the original action involves declaratory relief.  The First Circuit panel explained that section 33 of the 2d Restatement of Judgments provides such an exception to the general rule: 

The linchpin of this asseveration is section 33 of the Restatement (Second) of Judgments, which states that "[a] valid and final judgment in an action brought to declare rights or other legal relations of the parties is conclusive in a subsequent action between them as to the matters declared." Under this prescription, "[a] plaintiff who wins a declaratory judgment may go on to seek further relief, even in an action on the same claim which prompted the action for a declaratory judgment.

The panel then went on to find that although the Massachusetts high court had not adopted Section 33, "when faced with the question that is now before us, the SJC will adopt the articulation of claim preclusion principles limned in section 33 of the Second Restatement."

The court concluded that the ability of a party to seek declaratory relief would be frustrated if the plaintiff were required to bring all conceivable claims and counterclaims.  Read the full opinion here.