Claim preclusion; Taylor v Sturgell; Exceptions to the general rule that nonparties to a litigation cannot be bound to a judgment; Pre-existing substantive legal relationships exception; Parent-subsidiary relationship; Nonparty control of the prior litigation exception; The adequate-representation exception; Use of the close & significant-relationship test

[This appeal was from the ED-MI.] The court held that claim preclusion did not bar plaintiff’s lawsuit against defendant-corporate subsidiary (Mastronardi Produce-USA, referred to as USA) based on her prior unsuccessful suit against the parent corporation (nonparty-Mastronardi Produce, Ltd., referred to as Canada). Thus, it reversed the district court’s decision granting USA’s motion to dismiss. Plaintiff alleged she was subjected to race and gender discrimination, harassment, and retaliation while employed at a USA facility. The district court in that suit ruled that Canada was not her employer. In this suit against USA, she asserted “nearly identical factual allegations” and added a hostile work environment claim under Michigan law. On appeal, the court noted the general rule that nonparties to an action cannot be bound to a judgment, and that there are six exceptions. Rather “than look to whether the parties have a close and significant relationship, we instead ask whether [they] fit into one of the traditional exceptions.” Three were at issue. As to the exception for pre-existing substantive legal relationships, the court held that it could not “justify claim preclusion here.” It concluded that “the parent-subsidiary relationship between USA and Canada does not create an identical interest in property such that the property right was already adjudicated in the first” case. It noted that each “owns separate property, claims, liabilities, and contracts[.]” And even if they had “a substantive legal relationship giving them identical interests in some property, that property-based connection was not at issue in” either the prior case or here. Plaintiff alleged that they “were joint tortfeasors who discriminated against her. And at common law, joint tortfeasors were not in privity for res judicata purposes.” Next, the court found that the control exception also did not apply, noting that “the parent-subsidiary relationship cuts against control here, not for it.” Lastly, it held that the adequate-representation exception did not justify preclusion. This was “not a class action and USA, the party seeking preclusion, did not point to any special procedures used by the district court in the first case to protect its interests. It also did not present evidence that Canada was litigating the first case in a representative capacity.”