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How Disregard for Res Judicata Can Lead to Sanctions under Rule 11

Hunter Gene Waters

How Disregard for Res Judicata Can Lead to Sanctions under Rule 11
Kevin Winter via Getty Images

Res judicata, also known as claim preclusion, bars claims that were or could have been raised in prior litigation. Federal Rule of Civil Procedure 11 outlines when and how a court should sanction an attorney. Both doctrines were at play in the recent case Lee v. Pow! Entertainment Inc., No. 2:19 – CV – 085353, 2020 U.S. Dist. LEXIS 111704 (C.D. Cal. June 25, 2020).

In this recent decision concerning the estate of comic-book author Stan Lee, the U.S. District Court for the Central District of California granted the defendant’s motion to dismiss and motion for sanctions. Plaintiff JC Lee is trustee for the estate of Stan Lee, who created many famous Marvel Comics superheroes. Defendant POW! Entertainment, Inc. claims that a 1998 agreement between Stan Lee and Stan Lee Entertainment, Inc. assigned Lee’s name, likeness, and creator rights to POW in perpetuity.

The court dismissed JC Lee’s claims on res judicata grounds. JC Lee’s claims were identical to claims previously decided in numerous cases in federal courts throughout the country, including the Southern District of New York, the Central District of California, and the District of Colorado, which satisfied the identity-of-claims requirement of res judicata. JC Lee was either a party, or in privity with a party, in those prior cases.

The court also sanctioned JC Lee and her attorneys. Although Rule 11 sanctions are only granted with extreme caution, sanctions were appropriate here because JC Lee’s claims were frivolous, having already been decided against her by multiple courts, and a central allegation of the claims demonstrably untrue: JC Lee and her attorneys misrepresented that multiple courts had held the 1998 agreement unenforceable. Moreover, the court agreed with POW that the claims were brought for an improper purpose, generating negative publicity, as further evidenced by the abnormally long delay between filing and service of the complaint.

Weighing the need to deter bad conduct and the parties’ resources, the court imposed sanctions of $1 million against Lee and $250,000 against her lawyers. Few cases end in this extreme of an outcome—even those involving requests for sanctions under Rule 11—but those that do serve as a caution to attorneys and litigants advancing unsupported claims, particularly when they are seeking a second bite of the apple.