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Sixth Circuit Holds That Judgment Can Have Preclusive Effect Despite Being Set Aside

The Sixth Circuit Court of Appeals recently held that a judgment set aside for settlement purposes can have preclusive effect in subsequent litigation. In Watermark Senior Living Retirement Communities, Inc. v. Morrison Management Specialists, Inc., case no. 17-2129 (6th Cir. 2018), Watermark was a nursing home that had previously been sued by a decedent’s estate in a wrongful death case. Morrison was a contractor that had provided kitchen and dining services for the facility at issue, but Watermark chose not to implead Morrison as a responsible party. The jury found that Watermark had negligently caused the decedent’s injuries and a judgment was entered against Watermark. Watermark and the estate then settled for a lower amount, and jointly moved the trial court to set aside the judgment. The court granted the motion.

Watermark subsequently brought an action against Morrison under an indemnification clause in the parties’ contract requiring Morrison to indemnify Watermark for any loss arising out of Morrison’s negligence. However, the district court found that issue preclusion barred Watermark’s claims despite the fact that the previous judgment had been set aside. The Sixth Circuit Court of Appeals affirmed. “[W]hen a litigant elects to settle rather than appeal after receiving an adverse judgment . . . the losing party acquiesces in the court’s decision, even if he disagrees with it . . . . The party has had his day in court and waived his right to an appeal.”

A defendant should give careful consideration to whether a third party is responsible for alleged injuries and whether that third party should be joined into litigation at its onset. Under this recent opinion, the defendant may lose the ability to later seek indemnification from the third party.

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