A company that sued to recover money owed under an alleged settlement agreement and lost could not file a second lawsuit based on the claim that was settled, the Virginia Supreme Court ruled. In The Funny Guy v. Lecego, LLC, the Court found that the claim in the second lawsuit was based on the same conduct, transaction, or occurrence as that in the first lawsuit. This ruling could have severe consequences for plaintiffs with multiple claims under different legal theories.
Funny Guy claimed that Lecego still owed it $75,790 on a contract for work it performed for Lecego as a subcontractor on a government contract. To resolve the matter, Funny Guy offered to discount the outstanding balance by 3%, which it claimed Lecego accepted. When Lecego did not pay the settlement amount of $73,290, Funny Guy sued on a claim of breach of an oral or written settlement agreement.
The Fairfax County Circuit Court dismissed the lawsuit with prejudice, finding that no settlement agreement was ever reached. Funny Guy then brought a second lawsuit based upon the original unpaid amount (removing the 3% discount that it had offered in settlement). Lecego claimed that the second lawsuit was barred by the dismissal of the first lawsuit to enforce the settlement agreement, citing a long-respected Virginia doctrine of claim preclusion (also called res judicata). The circuit court agreed, ruling that Funny Guy should have sued under both theories from the beginning.
Funny Guy appealed the decision to the Virginia Supreme Court, which was divided in its response. Unfortunately for Funny Guy, the majority opinion supported the circuit court’s ruling that the second lawsuit was barred by the first, stating that the difference between the settlement and the original amount owed was not significant enough to allow Funny Guy to split up the claims, and that the claims both originated from the same basic facts.
The dissent drew several important distinctions between the two types of claims Funny Guy asserted in the two lawsuits. Not only were the two amounts owed different and based on different contracts, but the settlement agreement waived Funny Guy’s claims under the Prompt Payment Act. Because of the serious penalties that could be assessed against Lecego had Funny Guy pursued a Prompt Payment Act claim, the dissent argued that the settlement should be treated as a different transaction or occurrence from the underlying non-payment.
The takeaway: When owed money based on different theories or contracts, a party should generally bring all claims in one lawsuit. Absent very compelling reasons to bring multiple lawsuits supported by legally-significant distinctions, Virginia law prefers having all like claims resolved in one proceeding.