The US Court of Appeals for the Sixth Circuit concluded that summary judgment on the basis of the doctrine of res judicata was inappropriate because the two actions did not involve the same parties or their privies. AuSable River Trading Post, LLC v. Dovetail Solutions, Inc., Case No. 17-1283 (6th Cir., Oct. 23, 2017) (Donald, J). 

The City of Tawas, Michigan, hosts a yearly winter festival known as Perchville, and the Tawas Area Chamber of Commerce owns a federal trademark registration for “Perchville.” In 2013, the mark was temporarily cancelled for failure to file a renewal application on time, but a new application was filed within three weeks.

The Trading Post, a wholesale provider of miscellaneous products, sold merchandise displaying the term “Perchville.” In 2016, the Chamber sued Salvatore Agnello, an employee of the Trading Post, seeking to obtain an injunction against the use of “Perchville.” The Chamber did not include the Trading Post in its lawsuit because it was unaware that Mr. Agnello was selling the goods on behalf of the Trading Post. In a court hearing, Mr. Agnello expressed confusion as to the lawsuit but ultimately consented to the permanent injunction, and both Mr. Agnello and the Trading Post have since complied with the injunction.

Later in 2016, the Trading Post filed a complaint in district court, challenging the Chamber’s trademark. The Chamber argued that Trading Post’s claims were barred by the doctrine of res judicata. After the district court agreed with the Chamber, the Trading Post appealed.

On appeal, the Sixth Circuit reversed. Under Michigan law, a “second, subsequent action” is barred by res judicata when (1) the prior action was decided on the merits, (2) both actions involve the same parties or their privies, and (3) the matter in the second case was, or could have been, resolved in the first. The Court concluded that the parties appeared to concede that the first and third elements of res judicata were fulfilled. In determining whether privity was satisfied, the Court concluded that the “Trading Post’s interest here, the ability to sell merchandise geared toward a popular town event, is much more significant than that of Agnello, who was merely an hourly employee and likely unconcerned with whether the Trading Post could sell a particular type of product.” The Court noted that “it is equally clear that Agnello did not present or protect any interest of his or the Trading Post’s, nor was he actually given an adequate chance to, given the short notice, lack of an attorney, and lack of a full hearing.”

The Court further noted that the Trading Post did not appear at the scheduled hearing and the Chamber made no effort to include it. Therefore, the Chamber failed to meet its burden of showing that Agnello and the Trading Post were in privity such that the doctrine of res judicata would bar the Trading Post’s claims as a matter of law.