The Funny Guy Case Is No Laughing Matter: Virginia Supreme Court Applies Res Judicata In Rejecting Contract Claim

The Supreme Court of Virginia recently issued an opinion applying the principles of res judicata to affirm the dismissal of a contract claim. In The Funny Guy, LLC v. Lecego, LLC, No. 160242 (Feb. 16, 2017), the plaintiff filed a second lawsuit asserting alternative legal claims after its first lawsuit was dismissed. The court held that if alternative claims qualify for joinder under the "same transaction or occurrence" standard, they likewise constitute res judicata under Rule 1:6 of the Supreme Court of Virginia. This decision has significant implications for litigants in Virginia courts, especially in cases involving settlement agreements.

The dispute involved a contract for IT services between The Funny Guy, LLC and Lecego, LLC. A dispute arose following termination of the contract over payment for The Funny Guy's services. In its first lawsuit, The Funny Guy sued to enforce a settlement agreement, alleging that Lecego had agreed to pay most of the disputed fees as part of a settlement agreement, but later refused to do so. The trial court dismissed the first lawsuit, finding there was no "meeting of the minds" on the settlement. The Funny Guy filed a second lawsuit asserting breach of contract and quantum meruit, or unjust enrichment. The trial court dismissed the second suit based on res judicata, ruling that the breach of the underlying contract and claim for services provided were alternative theories of recovery that could have - and thus should have - been asserted in the first suit for the breach of the settlement agreement.

In a 4-3 decision, the Supreme Court of Virginia affirmed, holding that Rule 1:6 prohibited The Funny Guy from filing two separate lawsuits when it could have joined all of its claims in a single suit. Rule 1:6, adopted by the Court in 2006, provides that if the underlying dispute produces different legal claims—arising out of the "same conduct, transaction or occurrence"—that can be joined in a single lawsuit, then those claims must be joined unless an exception to res judicata exists. Also citing Va. Code §§ 8.01-272 & 8.01-281; Rule 1:4(k) of Supreme Court of Virginia, which "prohibits litigants from gaming the litigation system with multiple lawsuits involving the same underlying dispute."

The Court analyzed whether The Funny Guy's claims arose from a single transaction or occurrence by asking "whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit...