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Arizona Court of Appeals Division One Holds That a Judgment Rendered in a Small Claims Court is Not Entitled to Collateral Estoppel in a Subsequent Action in Superior Court.
Arthur Clusiau, founder of Clusiau Enterprises, Inc. ('CEI'), agreed on behalf of CEI to pay his wife Bonnie $350 a month until her death. Arthur died in 1986 and CEI made regular payments to Bonnie until October 2006. In September 2007, Bonnie filed a small claims action in San Marcos Justice Court alleging breach of contract. CEI's current president and sole shareholder, Carole Clusiau, answered on behalf of the company and denied liability. After a trial in which both Bonnie and Carole appeared, the hearing officer ruled in Bonnie's favor and awarded her $2,400 in damages. Tipelau mac os. In May 2008, Bonnie filed a second small claims action against CEI, alleging that the company failed to make payments from October 2007 through April 2008. CEI obtained counsel and answered the complaint, denying liability, and filed a counterclaim. Because the amount of the counterclaim exceeded the jurisdiction of the justice court, the action was transferred to Superior Court. The Superior Court granted Bonnie's subsequent motion for summary judgment and dismissed the counterclaim and entered judgment against CEI for $2,450 plus attorney's fees and costs. CEI appealed and all parties agreed that the dispositive issue was whether the current action is barred by collateral estoppel.
The Arizona Court of Appeals Division One reversed and remanded to the Superior Court. The Court noted that collateral estoppel prevents relitigation of an issue that was 'actually litigated in a previous proceeding if the parties had a full and fair opportunity and motive to litigate the issue, a valid and final decision on the merits was entered, resolution of the issue was essential to the decision, and the proceedings share a common identity of the parties.' The key issue in front of the Court was whether CEI had 'a full and fair opportunity and motive to litigate' in small claims court. In finding that it did not, the Court relied upon Restatement (Second) of Judgmnets § 28 which states that there is no preclusion where '[t]he party against whom preclusion is sought could not, as a matter of law, have obtained review of the judgment in the initial action' or '[a] new determination of the issue is warranted by differences in the quality or extensiveness of the procedures followed in the two courts or by factors relating to the allocation of jurisdiction between them.'
The Court found that the facts in this matter fell under both exceptions. In Arizona, there is no right to appeal from a judgment entered in small claims court. Additionally, the Court found that the procedures afforded to the parties in small claims court are far less extensive than those available in Superior Court. In small claims court, attorneys are not permitted unless both sides agree, the proceedings move very quickly, the only pretrial motion permitted is a change of venue, discovery proceedings are not allowed, and neither the Rules of Civil Procedure, nor the Rules of Evidence apply. Finally, the Court noted that the significant differences in jurisdiction between the two Courts made collateral estoppel improper. By filing her action in small claims court, Bonnie was acknowledging that her claim was worth no more than $2,500. If collateral estoppel was granted to the 2007 judgment, the jurisdiction of the small claims court would theoretically be expanded to cover all payments until Bonnie's death.
The Court was not persuaded by Bonnie's argument that CEI could have protected its right of appeal and obtained additional procedures by transferring the case to justice court. The Court noted that a defendant's liability in a small claims action is necessarily limited to $2,500 and, recognizing the many benefits small claims proceedings can confer on both sides, declined to adopt a rule that when a defendant agrees to proceed in small claims court, it deprives itself of the benefit of greater procedures and rights that may be available in a subsequent larger dispute involving the same issue. The Court left open the possibility of finding preclusion against a plaintiff who filed in small claims court or a defendant who asserted a counterclaim in small claims court.
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Judge Johnsen authored the opinion; Judges Orozco and Thompson concurred.
