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What the Legal Rule of ‘res Judicata’ Means and How It Can Help You Win Your Georgia Commercial Litigation Action

Poole Huffman, LLC

Whenever you pursue a commercial litigation action, you’ll need to make several choices. It is important to make your decisions carefully because there are legal rules that prevent you from taking more than “one crack” at pursuing certain requests for relief. That’s because of the legal rule of res judicata, and it is just one example of why it pays to have knowledgeable Georgia business counsel representing you.

One example of when this rule mattered and limited a plaintiff’s ability to recover damages was a dispute between a franchisor and one of its franchisees. The Atlanta-based franchisee signed a 25-year franchise agreement with the Sugar Hill-based franchisor of child daycare centers in 2006. The contract had within it terms that called for franchisees to pay to the franchisor certain royalty and advertising fees. Just six years into the relationship, the franchisee announced that it was terminating its agreement with the franchisor. It took down all signs and anything else that bore the franchisor’s name. It also stopped paying advertising and royalty fees to the franchisor.

This lack of payment of fees led the franchisor to sue for the franchisee’s failure to perform under the agreement. Specifically, the franchisor sought fees and interest for the first two months of 2015. The franchisee, however, successfully defeated the franchisor’s efforts in both the trial court and the court of appeals. The key to the franchisee’s success was the two sides’ past litigation history. Shortly after the franchisee repudiated the contract, it also sued the franchisor for negligent misrepresentation and violation of federal franchise rules. In that case, the franchisor filed a counterclaim against the franchisee for its alleged breach of the agreement.

As damages on this counterclaim, the franchisor sought “unpaid royalty and advertising fees.” During the course of that litigation, though, the franchisor abandoned its claims for future fees (covering the period of 2015-2031) and instead pursued only past fees from 2012-2014. The jury ultimately ruled in favor of the franchisee on its claim and in favor of the franchisor on its counterclaim.

That first lawsuit was the key to the franchisee’s success in the second. The courts concluded that, when the franchisor filed a counterclaim for breach of the agreement and sought damages for unpaid fees that it alleged were owed to it under that agreement, that lawsuit covered the entirety of the franchisee’s alleged breach of the contract. That meant that the legal doctrine of res judicata, which prevents a party from suing the same opponent over the same issue multiple times, served as a barrier to the franchisor’s recent lawsuit. The law says that once a court of proper jurisdiction issues a valid judgment on an issue between two parties, those parties cannot re-litigate that issue again by filing a new lawsuit, which is what the franchisor did in pursuing its second action.

The outcome of this franchisor-franchisee litigation highlights, among other things, how there are many different ways to achieve a successful result in your commercial litigation action. To give yourself the advice and representation your business needs, talk to the experienced Atlanta contract litigation attorneys at Poole Huffman, LLC. Our attorneys have been working for many years to help their clients achieve successful results. Contact our attorneys online or by calling 404-373-4008 to schedule your confidential consultation.

More blog posts:

Confirmation Letters – Avoiding Potential Conflict Regarding Agreement Terms, Atlanta Business Litigation Attorneys Blog, April 5, 2016

Commercial Real Estate Broker’s Liens, Atlanta Business Litigation Attorneys Blog, Sept. 23, 2013

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