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Federal judgment on breach of fiduciary duty claim didn’t bar employees’ state law action for unpaid wages and bonuses

Employees’ claims for a bonus due under an employment contract were not barred by the res judicata effect of a prior federal court judgment that awarded their former employer damages because of their breach of fiduciary duty, ruled a Louisiana appeals court (Fogleman v Meaux Surface Protection, Inc, March 9, 2011, Saunders, J). Because the central transaction in the employer’s federal litigation was the employees forming a competing business, while the central transaction in the state litigation was the employees’ attempt to collect wages and bonuses under their employment contracts, the state trial court erred in applying the doctrine of res judicata to the facts of this case.

After resigning from Meaux, the plaintiffs started a competing business and began soliciting the company’s employees and clients. Meaux filed a suit for breach of fiduciary duty in federal district court in Texas and was awarded damages of $1.4 million. Prior to that judgment, the employees filed a state court action in Louisiana seeking unpaid wages. The employees alleged that Meaux owed them payments of wages and bonuses under their employment contracts. The state trial court dismissed the employees’ claim based on the doctrine of res judicata with respect to the federal litigation.

The appeals court conducted a de novo review to determine whether the trial court was legally correct in finding that the federal court judgment barred the employees’ state law suit. Here, there was no dispute that the parties were the same in both litigations, that the federal court that rendered the judgment was a court of competent jurisdiction, and that the federal judgment was a final judgment on the merits. Thus, the only question remaining was whether the same cause of action was at issue in both of the cases.

In reviewing the record, the Louisiana court found several differences between the two litigations. First, the relevant timeframe for the state case was during the plaintiffs’ employment, while the claims in the federal litigation arose from conduct that occurred after the employees ceased working for Meaux. Additionally, the Louisiana litigation originated from the plaintiffs’ employment contracts, while the federal litigation originated from a breach of duty owed to the employer.

Finally, the motivation for the state litigation was to collect wages for work performed, while the motivation for the federal litigation was for the employer to collect damages for the harm it suffered. Additionally, the evidence for either party to succeed in its actions against the other was also different. In view of these findings, the Louisiana appeals court reversed the trial court’s judgment applying the doctrine of res judicata to bar the employees’ action to recover wages and bonuses under their employment contracts.