In most jurisdictions, including New York, a party is only entitled to litigate a claim once, provided the claim was decided on the merits. One exception to this rule was (believed to be) § 1808 of the New York City Civil Court Act, which seemed to allow a party to sue in small claims court and subsequently, bring an action in another court. However, a recent case puts this into question.
Small claims matters are usually commenced by pro se litigants (individuals representing themselves without an attorney), are for amounts $5,000 or less, and are not generally prosecuted or defended vigorously. In enacting § 1808, the Legislature, presumably realizing that many small claims litigants are unsophisticated when it comes to the workings of the legal system, allowed for the possibility that a party may not have had a full opportunity to present its position. However, instead of clearly stating when a party could re-litigate the small claims case, the law appeared to create a safety net of sorts by providing for the reduction of any judgment obtained in a subsequent action “involving the same facts, issues and parties” by the amount of any judgment obtained in small claims court. Section 1808 provides as follows:
Judgment obtained to be res judicata in certain cases. A judgment obtained under this article shall not be deemed an adjudication of any fact at issue or found therein in any other action or court; except that a subsequent judgment obtained in another action or court involving the same facts, issues or parties shall be reduced by the amount of a judgment awarded under this article.
The interpretation of § 1808 was raised in a recent decision of the New York State Court of Appeals in Simmons vs. Trans Express Inc.
In Simmons, the plaintiff sued her former employer in small claims court for unpaid overtime and was awarded $1,000. She subsequently retained counsel and brought an action in the United States District Court for the Southern District of New York seeking backpay and overtime under the New York Labor Law and the federal Fair Labor Standards Act. The employer moved to dismiss and the District Court granted the motion on res judicata grounds. Simmons appealed to the Second Circuit Court of Appeals which requested an interpretation from the New York Court of Appeals.
Res judicata, also referred to as claim preclusion, is the principle that once a matter has been fully adjudicated and a final judgment entered, the same parties are prohibited from re-litigating those claims again. All claims which were or should have been raised in the prior litigation are precluded under res judicata. A second principle, the doctrine of collateral estoppel, is more limited and only precludes the re-litigation of issues which were fully adjudicated in a prior litigation, provided the same was actually litigated and that the issue was decided on the merits and connected to the resulting judgment.
In interpreting § 1808, the Court of Appeals concluded that:
… small claims judgments do not have collateral estoppel or issue preclusive effect, … but such judgments may have the traditional res judicata or claim preclusive effect in a subsequent action involving a claim between the same adversaries arising out of the same transaction or series of transactions at issue in a prior small claims court action.
As a result, § 1808 would not preclude re-litigation of issues determined in the small claims case. However, it could preclude a party who obtained a small claims judgment from maintaining a subsequent action involving a claim arising from the same transaction. In other words, § 1808 does permit the small claims action to have a res judicata effect.
In reaching this conclusion, the Court of Appeals, never mentions the offset language contained in § 1808 leading the reader (and the dissenting Judges) to believe that Simmons cannot maintain this subsequent action. The Court of Appeals, however, refused to state whether the federal claims interposed by Simmons are precluded but “leaves that query to the federal courts….”
The takeaway here is that if there is even a possibility that you have a claim or multiple claims against the same party in excess of $5000, you should avoid small claims court, retain counsel, and commence a non-small claims action rather than risk being precluded later.
If you have any questions regarding a claim you may have, please contact one of our litigation attorneys.