Headwaters, Inc. and the Forest Conservation Council (collectively Headwaters) appealed a district court sua sponte dismissal, on res judicata grounds, of their claim against the United States Forest Service (USFS) for violations of the National Environmental Policy Act (NEPA), the Administrative Procedure Act (APA), and the National Forest Management Act (NFMA). The Ninth Circuit reversed the district court's sua sponte dismissal and remanded the issue of res judicata to the district court for further factual development concerning whether Headwaters was adequately represented during a past suit by the American Lands Council (American Lands).
A coalition of environmental groups and two individuals (American Lands)  brought suit against USFS on May 13, 1999 for violations of NEPA, NFMA, and the APA for the Beaver-Newt and Silver Fork timber sales in the Rogue River National Forest. In December, before the initiation of any litigation on the merits, American Lands signed a stipulation of dismissal of the complaint with prejudice, leading the district court to dismiss the action with prejudice. In February 2001, the Klamath-Siskiyou Wildlands Center, a plaintiff in the American Lands action, filed suit against USFS again alleging the same two timber sales violated NEPA, NFMA, and the APA. USFS responded with a motion for judgment on the pleadings citing grounds of res judicata. The Kalamath-Siskiyou Wildland Center responded with a rule 60(b) motion alleging the attorney for American Lands did not have the authority to enter into the American Lands settlement agreement. The district court chose to bar Klamath-Siskiyou's action on the grounds of res judicata. Klamath-Siskiyou chose not to appeal the action.
Three days after the court handed down the Klamath decision, Headwaters filed this action against USFS again alleging identical violations of NEPA, NFMA and the APA in the Beaver-Newt and Silver Fork timber sales. However, in contrast to the American Lands action, the Headwaters complaint related its claims to particular endangered species and alleged different interest in, and use of, the forest. The district court dismissed the complaint on the grounds that res judicata barred the claim. On appeal, a three judge panel for the Ninth Circuit initially affirmed the district court's sua sponte dismissal on res judicata grounds, but later issued an amended opinion that reversed the district court's sua sponte dismissal and remanded the question of res judicata to the district court for further factual consideration.
The Ninth Circuit reviewed the district court decision in light of the elements of res judicata: 1) identity of claims, 2) final judgment on the merits, and 3) privity between parties. The Ninth Circuit first reasoned that the Headwaters complaint shared enough similarities with the previous actions against USFS to bar their claim. The court relied on the similar NEPA, NFMA, and APA violations alleged in the Klamath and American Lands complaints. The three suits also share a similar nucleus of fact, in that all three arose out of the Beaver-Newt and Silver Fork timber sales. The Ninth Circuit concluded that a ruling on the present decision would effect both the American Lands and Klamath decisions.
The Ninth Circuit then reviewed the American Lands and Klamath decisions to determine if a final judgment existed on the merits. The court pointed out a dismissal with prejudice is considered a final judgment on the merits. Because the American Lands court dismissed the case with prejudice, the Ninth Circuit held the decision satisfied the second element of res judicata.
The Ninth Circuit also reviewed a relationship of privity between the previous plaintiffs, the final element of res judiata. The court commented that privity exists when a party's interest is sufficiently related to the interest of a former party so that he or she "represents precisely the same right in respect to the subject matter involved." The Ninth Circuit explained that courts historically defined privity as a limited number of legal relationships in which two parties possess "identical or transferred rights with respect to a particular legal interest." The modern definition, however, includes parties who share a relationship of virtual representation, a classification based upon a finding of identical interests and adequate representation.
The Ninth Circuit then considered the issue of adequate representation, a pre-requisite to determining that privity exists between two or more parties. The analysis of adequate representation protects due process rights of the plaintiff bringing the present suit by ensuring the prior plaintiff sufficiently represented their interests. A finding of adequate representation precludes the present plaintiffs from their day in court. In its analysis, the Ninth Circuit observed that American Lands and Headwaters both sought vindication of a public right to compel administrative agencies to comply with federal law. The court held that this similarity between the cases constituted adequate representation, and declined the opportunity to craft a public rights exception to the doctrine.
The Ninth Circuit subsequently barred non-traditional findings of privity, such as virtual representation, based solely on the pleadings, therefore reversing the district court's sua sponte dismissal of the Headwaters suit. The court indicated that a res judicata claim could only be dismissed sua sponte if the two actions at issue share the same claims and the same parties. Because Headwaters was not a party to the American Lands suit, the Ninth Circuit determined that a finding of virtual representation between the parties demanded factual development beyond the "bare record." The court explained that it needed further information concerning Headwaters's notice of the American Lands suit, and indicated that the American Lands court never considered the specific claim raised by Headwaters. The court also commented that the American Lands court did not implement the procedural safeguards of a class action that ensure adequate representation of parties affected by the judgment. Finally, the Ninth Circuit indicated that the district court never fully investigated whether American Lands and Headwaters shared organizational ties. Thus, the Ninth Circuit concluded that the district court did not have enough information to determine if the American Lands litigation adequately affected Headwaters's interests.
In conclusion, the Ninth Circuit reversed the district court's grant of summary judgment for USFS. While the majority upheld the district court's findings of identical claims and final judgment on the merits it determined that the district court could not conduct a privity analysis sua sponte because Headwaters was not a party to the previous case. The Ninth Circuit remanded the case to the district court to develop a factual record necessary for an evaluation of adequate representation between the parties.
Judge Goodwin, concurring, would have instructed the district court to award fees and costs to USFS if the factual record on remand indicated that Headwaters intentionally filed the present suit to prolong the unnecessary litigation.