C. A. Hardy v. Johns-Manville Sales Corporation

This appeal arises out of a diversity action brought by various plaintiffs — insulators, pipefitters, carpenters, and other factory workers — against various manufactur *336 ers, sellers, and distributors of asbestos-containing products. The plaintiffs, alleging exposure to the products and consequent disease, assert various causes of action, including negligence, breach of implied warranty, and strict liability. The pleadings in each of the cases are substantially the same. No plaintiff names a particular defendant on a case-by-case basis but, instead, includes several — often as many as twenty asbestos manufacturers — in his individual complaint. The rationale offered for this unusual pleading practice is that, given the long latent period of the diseases in question, it is impossible for plaintiffs to isolate the precise exposure period or to identify the particular manufacturer’s product responsible. The trial court accepted this rationale and opted for a theory of enterprise- or industry-wide liability used in, for example, Sindell v. Abott Laboratories, 26 Cal.3d 588, 163 Cal.Rptr. 132, 607 P.2d 924 (1980), cert. denied, 449 U.S. 912, 101 S.Ct. 286, 66 L.Ed.2d 140 (1980) (on proof that plaintiffs contracted a DES-related cancer and that their mothers took DES during pregnancy, market share apportionment determines a manufacturer’s liability unless a given manufacturer exculpates itself by proving that its product could not have caused the injury). The trial court held that Texas courts, faced with the impossibility of identifying a precise causative agent in these asbestos cases, would adopt a form of Sindeil liability, described as a “hybrid, drawing from concepts of alternative and/or concurrent liability and the law of products liability to form a type of absolute liability.” The trial court ruled that “discovery on percentage share of a relevant market may lead to admissible evidence in the trials of some, and perhaps all, of these cases” and therefore granted leave to consolidate them for discovery purposes. This ruling is not on appeal here.

Defendants’ interlocutory appeal under 28 U.S.C. § 1292(b) is directed instead at the district court’s amended omnibus order dated March 13, 1981, which applies collateral estoppel to this mass tort. 509 F.Supp. 1353. The omnibus order is, in effect, a partial summary judgment for plaintiffs based on nonmutual offensive collateral estoppel and judicial notice derived from this court’s opinion in Borel v. Fibreboard Paper Products Corp., 493 F.2d 1076 (5th Cir. 1973), cert. denied, 419 U.S. 869, 95 S.Ct. 127, 42 L.Ed.2d 107 (1974) (henceforth Borel). Borel was a diversity lawsuit in which manufacturers of insulation products containing asbestos were held strictly liable to an insulation worker who developed asbestosis and mesothelioma and ultimately died. The trial court construed Borel as establishing as a matter of law and/or of fact that: (1) insulation products containing asbestos as a generic ingredient are “unavoidably unsafe products,” (2) asbestos is a competent producing cause of mesothelioma and asbestosis, (3) no warnings were issued by any asbestos insulation manufacturers prior to 1964, and (4) the “warning standard” was not met by the Borel defendants in the period from 1964 through 1969. 1 Insofar as the trial court based its omnibus order on the res judicata effect of Borel, this aspect of the order is no longer valid. Migues v. Fibreboard Corp., 662 F.2d 1183 *337 (5th Cir. 1981). The sole issue on appeal is the validity of the order on grounds of collateral estoppel or judicial notice.

In Flatt v. Johns-Manville Sales Corp., 488 F.Supp. 836 (E.D.Tex.1980), the same court outlined the elements of proof for plaintiffs in asbestos-related cases. There the court stated that the plaintiff must prove by a preponderance of the evidence that

1. Defendants manufactured, marketed, sold, distributed, or placed in the stream of commerce products containing asbestos.

2. Products containing asbestos are unreasonably dangerous.

3. Asbestos dust is a competent producing cause of mesothelioma.

4. Decedent was exposed to defendant’s products.

5. The exposure was sufficient to be a producing cause of mesothelioma.

6. Decedent contracted mesothelioma.

7. Plaintiffs suffered damages.

Id. at 838, citing Restatement (Second) of Torts § 402A(1) (1965). The parties agree that the effect of the trial court’s collateral estoppel order in this case is to foreclose elements 2 and 3 above. Under the terms of the omnibus order, both parties are precluded from presenting evidence on the “state of the art” — evidence that, under Texas law of strict liability, is considered by a jury along with other evidence in order to determine whether as of a given time warning should have been given of the dangers associated with a product placed in the stream of commerce. Under the terms of the order, the plaintiffs need not prove that the defendants either knew or should have known of the dangerous propensities of their products and therefore should have warned consumers of these dangers, defendants being precluded from showing otherwise. On appeal, the defendants contend that the order violates their rights to due process and to trial by jury. Because we conclude that the trial court abused its discretion in applying collateral estoppel and judicial notice, we reverse.

CHOICE OF LAW

An initial question presented on appeal is what law governs the application of collateral estoppel in a diversity suit involving a prior federal judgment. Appellants argue that the trial court’s choice of federal law was incorrect. According to appellants, these cases, couched in terms of Texas law of strict liability and negligence, should be governed by Texas rules of collateral estoppel. The choice of law question is supposedly of significance because, according to appellants, Texas strictly adheres to the doctrine of mutuality, i.e., neither party can use a prior judgment to estop another unless both parties were bound by the prior judgment. If this view of Texas law is correct, the plaintiffs here, none of whom were parties to Borel, would of course be unable to invoke collateral estoppel.

We need not resolve the question of whether appellants’ view of Texas law of collateral estoppel is correct, however, since the district court was bound under the law of our circuit to apply federal law. In Johnson v. United States, 576 F.2d 606, 613 (5th Cir. 1978), cert. denied, 451 U.S. 1018, 101 S.Ct. 3007, 69 L.Ed.2d 389 (1981), we stated that federal res judicata principles apply in federal tort claim actions in order to preserve the integrity of federal court judgments and that this rationale applies equally to diversity cases. Accord, Southern Pacific Transportation Co. v. Smith Materials Corp., 616 F.2d 111, 115 (5th Cir. 1980); Aerojet-General Corp. v. Askew, 511 F.2d 710, 716-17 (5th Cir.), cert. denied, 423 U.S. 908, 96 S.Ct. 210, 46 L.Ed.2d 137 (1975). While appellants try valiantly to distinguish these eases, essentially on the grounds that these involved instances in which “the very issue involved in the first case was the subject of attempted litigation in the second,” the distinction is one without significance. As the authors of the Restatement (Second) — Judgments conclude, the principle of finality essential to a court’s authority demands that “federal law determine the effects under the rules of res judicata of a judgment of a federal court.” *338 Restatement (Second) — Judgments § 87 (1982). 2

Having determined that federal law of collateral estoppel governs, we next turn to an examination of just what that law is. In Parklane Hosiery Co. v. Shore, 439 U.S. 322, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979), the Supreme Court was asked to determine “whether a party who has had issues of fact adjudicated adversely to it in an equitable action may be collaterally estopped from relitigating the same issues before a jury in a subsequent legal action brought against it by a new party.” Id. at 324, 99 S.Ct. at 648. The Court responded affirmatively, noting offensive collateral estoppel’s “dual purpose of protecting litigants from the burden of relitigating an identical issue with the same party or his privy and of promoting judicial economy by preventing needless litigation.” Id. at 326, 99 S.Ct. at 649. The Court reiterated that mutuality is not necessary to proper invocation of collateral estoppel under federal law, citing Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313, 91 S.Ct. 1434, 28 L.Ed.2d 788 (1971), and further held that the use of offensive collateral estoppel does not violate a defendant’s seventh amendment right to a jury trial. To avoid problems with the use of the doctrine, the Court adopted a general rule of fairness, stating “that in cases where plaintiff could easily have joined in the earlier action or where ... for other reasons, the application of offensive collateral estoppel would be unfair to a defendant, a trial judge should not allow the use of offensive collateral estop-pel.” 439 U.S. at 331, 99 S.Ct. at 651. See also Hicks v. Quaker Oats Co., 662 F.2d 1158, 1170-71 (5th Cir. 1981).

In the wake of Parklane, it is clear that a right, question, or fact 3 distinctly put in issue and directly determined as a ground of recovery by a court of competent jurisdiction collaterally estops a party or his privy from relitigating the issue in a subsequent action. So stated, the doctrine recognizes that a person “cannot be bound by a judgment unless he has had reasonable notice of the claim against him and opportunity to be heard in opposition to that claim. IB J. Moore, Moore’s Federal Practice ¶ 0.411 at 1252 (2d ed.1982) (henceforth Moore’s). The right to a full and fair opportunity to litigate an issue is, of course, protected by the due process clause of the United States Constitution. Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. at 329, 91 S.Ct. at 1444; Hansberry v. Lee, 311 U.S. 32, 61 S.Ct. 115, 85 L.Ed. 22 (1940). While Parklane made the doctrine of mutuality effectively a dead letter under federal law, the ease left undisturbed the requisite of privity, i.e., that collateral estoppel can only be applied against parties who have had a prior “ ‘full and fair’ opportunity to litigate their claims.” 439 U.S. at 332, 99 S.Ct. at 652. The requirement that a person against whom the conclusive effect of a judgment is invoked must be a party or a privy to the prior judgment retains its full vigor after Parklane and has been repeatedly affirmed by our court. See, e.g., Marcus v. St. Paul Fire & Marine Insurance Co., 651 F.2d 379, 382 n.3 (5th Cir. 1981); In re Merrill, 594 F.2d 1064, 1067 n.3 (5th Cir. 1979); Johnson v. United States, 576 F.2d at 615. See also Restatement (Second) of Judgments § 34 (1982).

THE NON -BOREL DEFENDANTS

This is the first and, in our view, insurmountable problem with the trial court’s application of collateral estoppel in the ease sub judice. The omnibus order under review here does not distinguish between defendants who were parties to Borel and those who were not; it purports to estop all defendants because all purportedly *339 share an “identity of interests” sufficient to constitute privity. 4 The trial court’s action stretches “privity” beyond meaningful limits. While we acknowledge the manipulability of the notion of “privity,” see, e.g., Collateral Estoppel of Nonparties, 87 Harv.L.Rev. 1485, 1490, 1494-95 & n.66 (1974), this has not prevented courts from establishing guidelines on the permissibility of binding nonparties through res judicata or collateral estoppel. Without such guidelines, the due process guarantee of a full and fair opportunity to litigate disappears. Thus, we noted in Southwest Airlines Co. v. Texas International Airlines, 546 F.2d 84, 95 (5th Cir. 1977):

Federal courts have deemed several types of relationships “sufficiently close” to justify preclusion. First, a nonparty who has succeeded to a party’s interest in property is bound by any prior judgments against that party. ... Second, a non-party who controlled the original suit will be bound by the resulting judgment. . .. Third, federal courts will bind a nonparty whose interests were represented adequately by a party in the original suit,

(citations omitted). The rationale for these exceptions — all derived from Restatement (Second) of Judgments §§ 30, 31, 34, 39-41 (1982) — is obviously that in these instances the nonparty has in effect had his day in court. In this case, the exceptions elaborated in Southwest Airlines and in the Restatement are inapplicable. First, the Borel litigation did not involve any property interests. Second, none of the non-Borel defendants have succeeded to any property interest held by the Borel defendants. Finally, the plaintiffs did not show that any non-Borel defendant had any control whatever over the Borel litigation. “To have control of litigation requires that a person have effective choice as to the legal theories and proofs to be advanced in behalf of the party to the action. He must also have control over the opportunity to obtain review.” Restatement (Second) of Judgments § 39, comment c (1982). Accord, e.g., Moore's ¶ 0.411[6] at 1564-67. In, for example, Sea-Land Services v. Gaudet, 414 U.S. 573, 94 S.Ct. 806, 39 L.Ed.2d 9 (1974), the Supreme Court held that a nonparty may be collaterally estopped from relitigating issues necessarily decided in a suit by a party who acted as a fiduciary responsible for the beneficial interests of the nonparties. Even in this context, however, the Court placed the exception within strict confines: “In such cases, ‘the beneficiaries are bound by the judgment with respect to the interest which was the subject of the fiduciary relationship ....’” Id. at 593-94, 94 S.Ct. at 819, quoting F. James, Civil Procedure § 11.28 at 592 (1965). Many of our circuit’s cases evince a similar concern with keeping the nonparties’ exceptions to res judicata and collateral estoppel within strict confines. See, e.g., Southwest Airlines Co. v. Texas International Airlines, supra.

The fact that all the non-Borel defendants, like the Borel defendants, are engaged in the manufacture of asbestos-containing products does not evince privity among the parties. The plaintiffs did not demonstrate that any of the non-Borel defendants participated in any capacity in the Borel litigation — whether directly or even through a trade representative — or were even part of a trustee-beneficiary relationship with any Borel defendant. 5 On the contrary, several of the defendants indicate on appeal that they were not even aware of the Borel *340 litigation until those proceedings were over and that they were not even members of industry or trade associations composed of asbestos product manufacturers. 6

Plaintiffs can draw little support from the doctrine of “virtual representation” of cases such as Aerojet-General Corp. v. Askew, supra, in which we stated that “[u]nder the federal law of res judicata, a person may be bound by a judgment even though not a party if one of the parties to the suit is so closely aligned with his interests as to be his virtual representative” and that “the question whether a party’s interests in a case are virtually representative of the interests of a nonparty is one of fact for the trial court.” 511 F.2d at 719. In that case we approved a district court’s determination that the interests of two government entities were so closely aligned that a prior judgment against one entity bound the other. The proposition that governments may represent private interests in litigation, thereby precluding relitigation, while uncertain at the margin, appears to be an unexceptional special instance of the examples noted in Restatement (Second) of Judgments § 41(1) (1982). 7 The facts here permit no inference of virtual representation of interest. As we explained in Pollard v. Cockrell, 578 F.2d 1002, 1008-9 (5th Cir. 1978):

Virtual representation demands the existence of an express or implied legal relationship in which parties to the first suit are accountable to nonparties who file a subsequent suit raising identical issues. ... In the instant case . .. the [first] plaintiffs were in no sense legally accountable to the [second] plaintiffs; they shared only an abstract interest in enjoining enforcement of the ordinance. The [first] plaintiffs sued in their individual capacities and not as representatives of a judicially certified class. Representation by the same attorneys cannot furnish the requisite alignment of interest

Thus, in Pollard we rejected the contention that one group of massage parlor owners were bound by a judgment in a prior lawsuit brought by another group. Virtual representation was rejected despite nearly identical pleadings filed by the groups and representation by common attorneys. The court’s omnibus order here amounts to collateral estoppel based on similar legal positions — a proposition that has been properly rejected by at least one other district court that considered the identical issue. Mooney v. Fibreboard Corp., 485 F.Supp. 242, 249 (E.D.Tex.1980). We agree with the Texas Supreme Court that “privity is not established by the mere fact that persons may happen to be interested in the same question or in proving the same state of facts,” Benson v. Wanda Petroleum Co., 468 S.W.2d 361, 363 (Tex.1971), and hold that the trial court’s actions here transgress the bounds of due process.

Our conclusion likewise pertains to those defendants who, while originally parties to the Borel litigation, settled before trial. See supra note 4. The plaintiffs here did not show that any of these defendants settled out of the Borel litigation after the *341 entire trial had run its course and only the judicial act of signing a final known adverse judgment remained. Such action would suggest settlement precisely to avoid offensive collateral estoppel and, in an appropriate case, might preclude relitigation. All the indications here are, however, that the defendants in question settled out of the case early because of, for example, lack of product identification. Like the non- Borel defendants, these defendants have likewise been deprived of their day in court by the trial court’s omnibus order.

THE BOREL DEFENDANTS

The propriety of estopping the six defendants in this case who were parties to Borel poses more difficult questions. In ascertaining the precise preclusive effect of a prior judgment on a particular issue, we have often referred to the requirements set out, inter alia, in International Association of Machinists & Aerospace Workers v. Nix, 512 F.2d 125, 132 (5th Cir. 1975), and cases cited therein.' The party asserting the estoppel must show that: (1) the issue to be concluded is identical to that involved in the prior action; (2) in the prior action the issue was “actually litigated”; and (3) the determination made of the issue in the prior action must have been necessary and essential to the resulting judgment.

If it appears that a judgment may have been based on more than one of several distinctive matters in litigation and there is no indication which issue it was based on or which issue was fully litigated, such judgment will not preclude, under the doctrine of collateral estoppel, relitigation of any of the issues.

Federal Procedure, Lawyers Ed. § 51.218 at 151 (1981) (citations omitted). See also, e.g., Moore’s ¶ 0.442; Restatement (Second) —Judgments § 29, comment a (1982).

Appellants argue that Borel did not necessarily decide that asbestos-containing insulation products were unreasonably dangerous because of failure to warn. According to appellants, the general Borel verdict, based on general instructions and special interrogatories, permitted the jury to ground strict liability on the bases of failures to test, of unsafeness for intended use, of failures to inspect, or of unsafeness of the product. Strict liability on the basis of failure to warn, although argued to the jury by trial counsel for the plaintiff in Borel, was, in the view of the appellants, never formally presented in the jury instructions and therefore was not essential to the Borel jury verdict.

Appellants’ view has some plausibility. The special interrogatories answered by the Borel jury were general and not specifically directed to failure to warn. 8 Indeed, as we discussed at length in our review of the Borel judgment, the jury was instructed in terms of “breach of warranty.” 493 F.2d at 1091. Although the jury was accurately instructed as to “strict liability in tort” as defined in section 402A of the Restatement *342 (Second) of Torts, that phrase was never specifically mentioned in the jury’s interrogatories. It is also true that the general instructions to the Borel jury on the plaintiff’s causes of action did not charge on failure to warn, except in connection with negligence. 9 Yet appellants’ argument in its broadest form must ultimately fail. We concluded in Borel:

The jury found that the unreasonably dangerous condition of the defendants’ product was the proximate cause of Bo-rel’s injury. This necessarily included a finding that, had adequate warnings been provided, Borel would have chosen to avoid the danger.

493 F.2d at 1093. As the appellants at times concede in their briefs, “if Borel stands for any rule at all, it is that defendants have a duty to warn the users of their products of the long-term dangers attendant upon its use, including the danger of an occupational disease.” Indeed, the first sentence in our Borel opinion states that that case involved “the scope of an asbestos manufacturer’s duty to warn industrial in *343 sulation workers of dangers associated with the use of asbestos.” Id. at 1081. See also 493 F.2d at 1105 (on rehearing). Our conclusion in Borel was grounded in that trial court’s jury instructions concerning proximate cause and defective product, which we again set forth in the margin. 10 Close reading of these instructions convinced our panel in Borel that a failure to warn was necessarily implicit in the jury’s verdict. While the parties invite us to reconsider our holding in Borel that failure to warn grounded the jury’s strict liability finding in that case, we cannot, even if we were so inclined, displace a prior decision of this court absent reconsideration en banc. Further, there is authority for the proposition that once an appellate court has disposed of a case on the basis of one of several alternative issues that may have grounded a trial court’s judgment, the issue decided on appeal is conclusively established for purposes of issue preclusion. See Moore’s ¶ 0.416[2] at 2231, ¶ 443[5] at 3921 n.10; IRO v. Republic SS Corp., 189 F.2d 858, 862 (4th Cir. 1951). Nonetheless, we must ultimately conclude that the judgment in Borel cannot estop even the^Borel defendants in this case for three interrelated reasons.

First, after review of the issues decided in Borel, we conclude that Borel, while conclusive as to the general matter of a duty to warn on the part of manufacturers of asbestos-containing insulation products, is ultimately ambiguous as to certain key issues. As the authors of the Restatement (Second) —Judgments § 29, comment g (1982), have noted, collateral estoppel is inappropriate where the prior judgment is ambivalent:

The circumstances attending the determination of an issue in the first action may indicate that it could reasonably have been resolved otherwise if those circumstances were absent. Resolution of the issue in question may have entailed reference to such matters as the intention, knowledge, or comparative responsibility of the parties in relation to each other. .. . In these and similar situations, taking the prior determination at face value for purposes of the second action would extend the effects of imperfections in the adjudicative process beyond the *344 limits of the first adjudication, within which they are accepted only because of the practical necessity of achieving finality-

The Bore! jury decided that Borel, an industrial insulation worker who was exposed to fibers from his employer’s insulation products over a 33-year period (from 1936 to 1969), was entitled to have been given fair warning that asbestos dust may lead to asbestosis, mesothelioma, and other cancers. The jury dismissed the argument that the danger was obvious and regarded as conclusive the fact that Borel testified that he did not know that inhaling asbestos dust could cause serious injuries until his doctor so advised him in 1969. The jury necessarily found “that, had adequate warnings been provided, Borel would have chosen to avoid the danger.” 493 F.2d at 1093. In Borel, the evidence was that the industry as a whole issued no warnings at all concerning its insulation products prior to 1964, that Johns-Manville placed a warnings label on packages of its products in 1964, and that Fibreboard and Rubberoid placed warnings on their products in 1966. Id. at 1104.

Given these facts, it is impossible to determine what the