Does a prior declaratory judgment action entail res judicata effect?

   
Here is a scenario where the difference between claim and issue preclusion becomes meaningful: a prior suit of declaratory relief, and a second suit seek other type of relief.
  

DECLARATORY JUDGMENT AND RES JUDICATA: THE EXCEPTION
   

The elements for establishing res judicata, or claim preclusion, are "(1) a prior final judgment on the merits by a court of competent jurisdiction; (2) identity of parties or those in privity with them; and (3) a second action based on the same claims as were raised or could have been raised in the first action." Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 652 (Tex. 1996).

An exception to the application of res judicata is when the original suit sought only a declaratory judgment. See Valley Oil Co. v. City of Garland, 499 S.W.2d 333, 335 (Tex. Civ. App.-Dallas 1973, writ ref'd n.r.e.). In this situation, the first judgment provides only declaratory relief and does not bar a subsequent proceeding for coercive relief stemming from the declaratory judgment. See id.; TEX. CIV. PRAC. & REM. CODE ANN. § 37.011 (Vernon 2008) (providing "[f]urther relief based on a declaratory judgment or decree may be granted whenever necessary or proper").

The rationale for this apparent departure from the usual rule of res judicata is that the losing party in a declaratory judgment action can normally be expected to recognize the rights declared by the judgment and act accordingly, but that if he fails to do so, the court should have ample power to enforce the judgment by subsequent coercive orders, whether or not such relief was sought in the original action.

Valley Oil, 499 S.W.2d at 336.

Under this exception, the only matters excluded from subsequent litigation are what was actually considered and ruled on in the original action. See Alsheikh v. Arabian Nat'l Shipping Corp., 01-08-00007-CV, 2009 WL 884795, at *2 (Tex. App.-Houston [1st Dist.] 2009, no pet.) (mem. op.). In other words, while issue preclusion (collateral estoppel) applies to prior declaratory judgment actions, claim preclusion (res judicata) does not. See id.; Barr v. Resolution Trust Corp. ex rel. Sunbelt Fed. Sav., 837 S.W.2d 627, 628 (Tex. 1992) (distinguishing between issue preclusion and claim preclusion and defining issue preclusion as preventing relitigation of particular issues already resolved in prior suit).

SOURCE: HOUSTON COURT OF APPEALS – No. 01-11-00650-CV – 1/24/2013 – CBS Outdoor, Inc. v. Potter
 

SNIPPET FROM EARLIER CASE FROM HOUSTON ADDRESSING THE SAME ISSUE:

The doctrine of res judicata bars a second suit by parties on matters actually litigated in an earlier suit, as well as claims "`which, through the exercise of diligence, could have been litigated in a prior suit.'" Getty Oil Co. v. Ins. Co. of N. Am., 845 S.W.2d 794, 799 (Tex.1992) (quoting Barr v. Resolution Trust Corp., 837 S.W.2d 627, 631 (Tex.1992)). Texas follows the transactional approach to res judicata, which requires claims arising out of the same subject matter to be litigated in a single lawsuit. Hallco Tex., Inc. v. McMullen County, 221 S.W.3d 50, 58 (Tex. 2006); Barr, 837 S.W.2d at 631. For res judicata to apply, there must be: (1) a prior final judgment on the merits by a court of competent jurisdiction; (2) identity of parties or those in privity with them; and (3) a second action based on the same claims that were raised or could have been raised in the first action. Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 652 (Tex. 1996).

Here, the third element of res judicata is not met because there is no second action concerning these claims. The reversal of Jay's motion for summary judgment made the counterclaims live again, which does not constitute res judicata because the matter of attorney's fees was never finally determined. See Tex. Water Rights Comm'n v. Crow Iron Works, 582 S.W.2d 768, 771 (Tex.1979) (stating res judicata requires cause "finally determined, without appeal").

We also note that when we rendered the declaratory judgment in favor of EOG, EOG could seek a subsequent application for relief based on rights declared in the prior judgment, "even though such relief could have been granted in the original action," unless such application was actually considered and denied in the original action. State v. Anderson Courier Serv., 222 S.W.3d 62, 66 (Tex.App.-Austin 2005, pet. denied); Valley Oil Co. v. City of Garland, 499 S.W.2d 333, 335 (Tex.Civ. App-Dallas 1973, no writ). As our sister court explained,

[T]he rationale for this apparent departure from the usual rule of res judicata is that the losing party in a declaratory judgment action can normally be expected to recognize the rights declared by the judgment and act accordingly, but that if he fails to do so, the court should have ample power to enforce the judgment by subsequent coercive orders, whether or not such relief was sought in the original action.

Valley Oil Co., 499 S.W.2d at 336; see also 3 William V. Dorsaneo III, Texas Litigation Guide § 45.03 (2008) ("After a party has obtained a declaratory judgment, a subsequent suit may be brought for further relief if it is necessary or proper. [Citation omitted.] This rule involves a departure from the strict application of res judicata, which would ordinarily bar a subsequent proceeding because coercive relief could have been granted in the original action. It is justified on the theory that the loser may be expected to recognize the rights declared by the judgment, and if not, some form of compulsion should be available."). Because the trial court never had the opportunity to consider EOG's request for attorney's fees following our declaratory judgment in favor of EOG, EOG could not be barred by res judicata to pursue that claim for relief based on rights declared by our judgment.

We hold EOG's counterclaim for attorney's fees is not barred by res judicata. We overrule Jay's second issue.

SOURCE:  Jay Petroleum, L.L.C. v. EOG Resources, Inc., 332 S.W.3d 534, 539 (Tex. App.-Houston [1st Dist.] 2009, pet. denied);