Semtek International, Inc. v. Lockheed Martin Corp. (02/27/2001)

By: Molly Dugan, Medill News Service

Questions presented

Is the 1874 holding in Dupasseur v. Rochereau, 88 U.S. 130 -- that the res judicata effect of a federal court judgment ""is such as would belong to judgments of State courts rendered under similar circumstances"" -- still good law, and if not, what should the res judicata effect of statute of limitations be in a diversity suit?

Brief

Semtek International Inc. formed in 1992 with the sole purpose of making business deals with emerging Russian companies.

The well-known Lockheed Martin Corp. focuses on high tech ventures.

Together, in the fall of 1992, the two companies entered into an agreement with a Russian business, Merkurity Ltd., to use old military satellites for commercial communications.

After two years, the deal fell apart because of a separate agreement Lockheed made with Merkurity.

Semtek filed suit against Lockheed in California Superior Court in 1997, accusing Lockheed of breach of contract, intentional and negligent interference with prospective economic advantage and civil conspiracy.

The case was transferred to the U.S. District Court in central California. But because the statute of limitations in California is two years, the federal judge dismissed the lawsuit.

Later that year, Semtek re-filed in state court in Baltimore, making the claim subject to Maryland's three-year statute of limitations.

Lockheed moved to dismiss the case in a federal court in Maryland. However, Semtek sought to have the action remanded to state court. On Dec. 31, 1997, the federal court in Maryland granted Semtek's request and sent the case back to state court, finding that removal could not be based on federal statute of limitations grounds.

Once back in state court, the judge dismissed Semtek's lawsuit on the grounds of res judicata, meaning that the matter had already been settled in another court.

In September 1999, the Maryland Court of Special Appeals unanimously affirmed and ordered that costs be paid by Semtek.

""Federal law does not permit a plaintiff to shop indefinitely for favorable statutes of limitations in every state where personal jurisdiction over a defendant might be found,"" wrote Judge Charles Moylan for the court.

The issue before the courts was no longer about the alleged indiscretions of Lockheed. Semtek argued that the appeals court analysis of whether the Maryland action is barred on res judicata grounds should be dictated by California law and that the trial judge in Maryland erroneously applied the federal law when making his determination.

The Maryland Court of Special Appeals emphatically disagreed.

""The doctrine of res judicata is a rule of fundamental and substantial justice, of public policy and of private peace, which should be cordially regarded and enforced by the courts,"" Moylan wrote.

""Multiple litigation is costly, both in terms of the expense incurred by a party who must defend against the same claim in different courts as well as the expense resulting from the inefficient use of the federal judicial machinery. Allowing plaintiffs who fail to comply with applicable statutes of limitations to move to the next state over would have the undesirable effect of encouraging forum shopping and rewarding dilatory conduct,"" the opinion stated.

On June 26, 2000 the U.S. Supreme Court granted certiorari in this case, and on Feb. 27, 2001, the Court unanimously reversed, holding for Semtek International that although federal common law applies, the better rule in diversity cases is to allow the claim-preclusion law that would be applied by state courts in the state in which the federal court sits, which in this case, was Maryland.

Any other result, wrote Justice Antonin Scalia for the unanimous Court, and the rule would in many cases violate federalism principles by engendering substantial variations in outcomes between state and federal litigationwhich would likely influence forum choice, and produce unnecessary forum shopping and inequitable administration of the laws.