Gargallo V. Lynch

This case presents the interesting dual questions 1) whether a federal court must apply federal or state claim preclusion law in deciding 2) whether a prior state court judgment upon subject matter over which only a federal court has jurisdiction is a bar to a subsequent federal court claim upon the identical cause of action. Plaintiff Miguel A. Gargallo sued defendants Merrill Lynch, Pierce, Fenner, & Smith, Inc. ("Merrill Lynch") and Larry W. Tyree, a security salesman for Merrill Lynch, in the United States District Court for the Southern District of Ohio alleging violations of the Securities Exchange Act of 1934, 15 U.S.C. 78a, et seq., and Securities Exchange Commission rules and regulations. Finding that plaintiff had previously brought the same claim against Merrill Lynch in a state court and that the state court had dismissed the claim on its merits, the district court dismissed the suit below on the grounds of res judicata as to Merrill Lynch, and collateral estoppel as to Larry Tyree. The plaintiff appeals, and we reverse holding 1) that state claim preclusion law must be applied, and 2) that, in this instance, the prior state adjudication is not a bar to subsequent federal court action upon the same cause of action.