
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                              _________________________          No.  93-2021                                    OLGA GONZALEZ,                          a/k/a OLGA GONZALEZ ABREU, ET AL.,                               Plaintiffs, Appellants,                                          v.                             BANCO CENTRAL CORP., ET AL.,                                Defendants, Appellees.                              _________________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                           FOR THE DISTRICT OF PUERTO RICO                    [Hon. Hector M. Laffitte, U.S. District Judge]                                              ___________________                              _________________________                                        Before                                Selya, Circuit Judge,                                       _____________                            Bownes, Senior Circuit Judge,                                    ____________________                              and Stahl, Circuit Judge.                                         _____________                              _________________________               Fernando  L. Gallardo, with whom Woods & Woods was on brief,               _____________________            _____________          for appellants.               Luis Sanchez  Betances, with whom Ivonne  Cruz Serrano, Luis               ______________________            ____________________  ____          A. Melendez-Albizu,  and Sanchez-Betances & Sifre  were on brief,          __________________       ________________________          for appellees.                              _________________________                                    June 30, 1994                              _________________________                    SELYA, Circuit  Judge.  This appeal  raises tantalizing                    SELYA, Circuit  Judge.                           ______________          questions  concerning  the application  of  the  doctrine of  res          judicata  to nonparties.    Because we  conclude that  appellants          cannot lawfully be  precluded from bringing  their action in  the          circumstances  at bar, we  reverse the district  court's order of          dismissal and remand for further proceedings.          I.  BACKGROUND          I.  BACKGROUND                    In the  1970s, a  consortium of real  estate developers          sold subdivided  lots of undeveloped land  to approximately 3,000          purchasers, most of whom resided in Puerto Rico.  Contrary to the          promoters' glowing representations, the  real estate proved to be          Florida swampland, unsuitable for development.                    In 1982, a  gaggle of duped  purchasers (whom we  shall          call "the Rodriguez plaintiffs") commenced a civil  action in the          United  States District  Court for  the District of  Puerto Rico.          They  sued the sellers, the banks that financed the project,1 and          several related individuals.   The  Rodriguez plaintiffs  alleged          violations  of  the Interstate  Land  Sales  Full Disclosure  Act          ("ILSFDA"), 15  U.S.C.    1703,  the Securities  Exchange Act  of          1934,  15  U.S.C.    78j,  Rule  10b-5  thereunder,  17 C.F.R.             240.10b-5,   and   the   Racketeering  Influenced   and   Corrupt          Organizations  Act ("RICO"), 18 U.S.C.    1961-1964.  Some of the          plaintiffs  then  assisted  in   the  formation  of  the  Sunrise          Litigation Group.   The  group's members  paid  fees that  helped                                        ____________________               1Most of  the financing was  undertaken by  Banco Central  y          Economias and Banco de Economias, the predecessors in interest of          defendant-appellee Banco Central Corp.                                          2          defray the costs of the litigation and exchanged information that          sometimes proved to be of use in pursuing the litigation.                    After   several  years   of   discovery  and   numerous          amendments  to  the  pleadings,  the  Rodriguez  plaintiffs,  152          strong, sought to convert their suit to a class action.  In April          of 1987, the district court refused either to certify  a class or          to permit additional plaintiffs to intervene.  Almost immediately          thereafter, several prospective plaintiffs  who had tried in vain          to join  the Rodriguez  litigation initiated the  instant action.          The  new coalition of claimants (whom we shall call "the Gonzalez          plaintiffs") were represented by the same lawyers who represented          the  Rodriguez plaintiffs.    They sued  the same  defendants and          their  complaint mimicked  a proposed  amended complaint  on file          (but never allowed) in the Rodriguez litigation.                    During  the  next  few  years,  some  of  the  Gonzalez          plaintiffs joined the Sunrise Litigation Group.  In the same time          frame,  they prevailed on no fewer  than five motions to bring in          additional  claimants.   And on  January 16,  1992, the  district          court allowed the Gonzalez plaintiffs to amend their complaint to          include mail  fraud as  a  RICO predicate  act, see  18 U.S.C.                                                             ___          1962(d), and to include  claims for breach of contract  and fraud          under Puerto Rico law, see, e.g., P.R. Laws Ann. tit. 31,   3018.                                 ___  ____                    Despite   strong   evidence   of   skullduggery,2   the                                        ____________________               2Judge Fuste, who presided over the Rodriguez case, believed          the  plaintiffs  "undoubtedly"  had  been wronged.    Even  while          upholding many  of the  defendants' legal arguments,  he lamented          the seeming injustice "in allowing the . . . sellers of swampland          to trusting buyers, to walk from this court without so  much as a                                          3          Rodriguez plaintiffs frittered away much of their case through  a          series  of pretrial  blunders.   See,  e.g.,  Rodriguez v.  Banco                                           ___   ____   _________     _____          Central Corp., 727 F. Supp. 759, 763-65 (D.P.R. 1989) (dismissing          _____________          claims under ILSFDA as time-barred), aff'd in part and vacated in                                               ____________________________          part, 917 F.2d  664 (1st  Cir. 1990); id.  at 769-70  (dismissing          ____                                  ___          RICO claims premised on federal securities violations); Rodriguez                                                                  _________          v. Banco Central  Corp., 777  F. Supp. 1043,  1047 (D.P.R.  1991)             ____________________          (discussing  plaintiffs'  failure  to  plead  certain potentially          viable claims).   The  Rodriguez plaintiffs ultimately  lost what          remained of their case  after a seven-week jury trial  when Judge          Fuste directed verdicts for the  defendants on the only surviving          claims  and this court upheld his ruling on appeal, see Rodriguez                                                              ___ _________          v. Banco Central Corp., 990 F.2d 7, 14 (1st Cir. 1993).             ___________________                    Following  the interment  of the  Rodriguez litigation,          renewed attention  focused on the Gonzalez  litigation (which was          pending before Judge Laffitte).  By then, the Gonzalez plaintiffs          were pressing  certain claims  that replicated those  pressed and          lost by the Rodriguez plaintiffs,  e.g., claims under the ILSFDA,                                             ____          Rule 10b-5, and RICO (premised on securities fraud), and  certain          additional claims  that had  been neglected  or abandoned  by the          Rodriguez plaintiffs,  e.g., RICO claims premised  on mail fraud,                                 ____          state-law claims for fraud, and claims for breach of contract.                    After  silhouetting  the   Gonzalez  plaintiffs'   suit          against the backdrop of the completed Rodriguez litigation, Judge                                        ____________________          scratch."  Rodriguez v.  Banco Central Corp., 777 F.  Supp. 1043,                     _________     ___________________          1065 (D.P.R. 1991).                                          4          Laffitte, by way of  an unpublished memorandum opinion, dismissed          the  action in  its entirety  on grounds  of res  judicata.   The          Gonzalez plaintiffs appeal.  We have jurisdiction pursuant  to 28          U.S.C.   1291.          II.  ANALYSIS          II.  ANALYSIS                    Although appellants  were not  parties  to the  earlier          litigation,  the court below applied res judicata in bar of their          claims under a  theory of privity.  The applicability  vel non of                                                                 ___ ___          the  doctrine of  res judicata  presents a  question of  law over          which we exercise  plenary appellate review.   See E. &  J. Gallo                                                         ___ ______________          Winery v. Gallo Cattle Co., 967 F.2d  1280, 1287 (9th Cir. 1992).          ______    ________________          Federal law governs the  res judicata effects of a  federal court          judgment in a federal  question case as applied  to a later  case          that again presents a federal  question to a federal court.   See                                                                        ___          Blonder-Tongue Labs., Inc. v. University of Ill. Found., 402 U.S.          __________________________    _________________________          313, 324 n.12  (1971); Kale v. Combined Ins. Co.,  924 F.2d 1161,                                 ____    _________________          1165 (1st  Cir.), cert. denied, 112 S. Ct. 69 (1991); see also 18                            _____ ______                        ___ ____          Charles A. Wright, et al., Federal Practice and Procedure   4466,                                     ______________________________          at 617-18 (1981) (hereinafter "Wright & Miller").  Thus,  because          both  the  earlier (ostensibly  precluding)  suit  and the  later          (ostensibly    precluded)    suit   invoked    federal   question          jurisdiction, see 28 U.S.C.   1331, the  rule of decision here is                        ___          supplied by federal law.                    The accepted formulation  of res  judicata for  federal          court  use teaches that  "a final  judgment on  the merits  of an          action precludes  the parties or their  privies from relitigating                                          5          issues  that  were or  could have  been  raised in  that action."          Allen  v.  McCurry, 449  U.S. 90,  94  (1980).   Accordingly, the          _____      _______          elements of res judicata are  (1) a final judgment on the  merits          in  an  earlier suit,  (2)  sufficient  identicality between  the          causes of action asserted in the earlier and later suits, and (3)          sufficient  identicality between  the parties  in the  two suits.          See Aunyx  Corp. v. Canon U.S.A.,  Inc., 978 F.2d 3,  6 (1st Cir.          ___ ____________    ___________________          1992), cert.  denied, 113 S. Ct.  1416 (1993); Kale, 924  F.2d at                 _____  ______                           ____          1165.                    In  the present  situation, the  first element  in this          tripartite test provokes no controversy; appellants  concede that          the earlier  (Rodriguez) suit resulted  in final judgment  on the          merits.  Thus, we  concentrate our energies on the  remaining two          prongs of the test.                        A.  Identicality of Causes of Action.                        A.  Identicality of Causes of Action.                            ________________________________                    To determine whether sufficient subject matter identity          exists between an earlier and a later suit, federal courts employ          a transactional  approach.  See Kale, 924 F.2d at 1166; Manego v.                                      ___ ____                    ______          Orleans  Bd. of  Trade,  773 F.2d  1, 5  (1st  Cir. 1985),  cert.          ______________________                                      _____          denied, 475  U.S. 1084 (1986);  see also Restatement  (Second) of          ______                          ___ ____ ________________________          Judgments   24 (1992).  This approach recognizes that a valid and          _________          final  judgment in  an action  will extinguish  subsequent claims          "with respect to all or any part of the transaction, or series of          connected transactions,  out of which the action arose."  Manego,                                                                    ______          773 F.2d at 5 (quoting Restatement   24).                    To   understand  the  transactional   approach,  it  is                                          6          necessary to appreciate  that a single  transaction or series  of          transactions  can   and often does    give rise to a multiplicity          of claims.  Phrased another way, "[a] single  cause of action can          manifest  itself  in an  outpouring  of  different claims,  based          variously  on federal  statutes, state  statutes, and  the common          law."   Kale, 924 F.2d at  1166.  The necessary  identity will be                  ____          found to exist  if both sets  of claims    those asserted in  the          earlier  action and  those asserted  in  the subsequent  action            derive from a  common nucleus of  operative facts.  See  id. This                                                              ___  ___          principle pertains  no matter how diverse or  prolific the claims          themselves may be.  See 1B J.  Moore, Federal Practice   0.410[1]                              ___               ________________          at 350 (2d  ed. 1993) (explaining that "the  `cause of action' or          `claim' .  . .  is  bounded by  the injury  for  which relief  is          demanded,  and not by  the legal theory").   It  follows that the          omission  of a  particular statement  of claim from  the original          suit is of  no great consequence; if the transaction  is the same          and the other components of the test are satisfied, principles of          res judicata will bar all  claims that either were or  could have          been asserted in the initial action.  See Kale, 924 F.2d at 1166;                                                ___ ____          Manego,  773 F.2d  at 5.   The  key is  to define  the underlying          ______          injury.                    This definitional  process is  not a  purely mechanical          exercise.   "What factual  grouping constitutes  a `transaction',          and  what  groupings constitute  a  `series',  are [matters  that          should] be determined pragmatically," taking into consideration a          wide  variety of relevant  factors, including but  not limited to                                          7          such things as  "whether the  facts are related  in time,  space,          origin, or motivation, whether they form a convenient trial unit,          and  whether their treatment as  a unit conforms  to the parties'          expectations . . . ."  Aunyx, 978 F.2d at  7 (quoting Restatement                                 _____          (Second) of Judgments   24).                    Given  these  criteria,   we  believe  that   there  is          sufficient  identicality  here  between  the  earlier  and  later          actions to  satisfy the  requisite standard.   Without exception,          appellants' claims stem  from the same series  of transactions as          the claims  asserted in  the  initial litigation.   Although  the          individual sales contracts  are different, all of  them arise out          of a  single course  of conduct undertaken  by a  band of  allied          defendants.    By like  token,  while each  purchaser  acquired a          different lot  at a different price, all the lots are part of the          same development and all were sold by means of the same ballyhoo.          At the very least, the two sets of claims are  closely related in          time, origin, and geography.                    Moreover, if merged, the two  sets of claims would form          a  well-integrated unit.  The  same kinds of  land sale contracts          that the Rodriguez plaintiffs attacked under ILSFDA and sought to          characterize as  "securities" for  purposes of their  RICO claim,          see  Rodriguez,  990  F.2d  at 9,  underlie  appellants'  current          ___  _________          claims.   To be  sure, appellants have  negotiated the procedural          minefield  more  nimbly   than  their  predecessors,  and   have,          therefore, assembled a more  varied assortment of legal theories;          but  their  claims    including  both  those  that replicate  the                                          8          Rodriguez plaintiffs' claims  and those that  do not    implicate          the same series of interconnected  transactions that gave rise to          the causes of action litigated in the earlier lawsuit.  In short,          both sets of claims, though dressed in different legal garb, grow          out of a common nucleus of operative facts.  No more is exigible.                             B.  Identicality of Parties.                             B.  Identicality of Parties.                                 _______________________                    Concluding,  as   we  do,  that  the  district  court's          analysis passes  muster  on  the  first  two  components  of  the          tripartite test, we turn to the third essential ingredient needed          to  invoke the  doctrine of  res  judicata:   the  presence of  a          sufficient identity between the parties  to the earlier and later          actions.  Short of situations in which precisely the same parties          appear  in both suits, this element is almost always difficult to          gauge.                    1.   Nonparty Preclusion.  We step back to gain a sense                    1.   Nonparty Preclusion.                         ___________________          of perspective.  We are aware that a Supreme Court  dictum can be          read  to suggest that res judicata  is inoperative as a matter of          law insofar as nonparties  are concerned.  See Montana  v. United                                                     ___ _______     ______          States, 440 U.S. 147, 154 (1979) ("Preclusion of . . . nonparties          ______          falls under  the rubric  of collateral  estoppel rather  than res          judicata because the latter doctrine presupposes identity between          causes  of action.  And the cause  of action which a nonparty has          vicariously  asserted differs  by definition  from that  which he          subsequently  seeks to litigate in his own right.") (dictum).  We          believe it is highly improbable, however, that the Montana Court,                                                             _______          whose primary interest lay in molding the contours of the related                                          9          doctrine of  collateral estoppel,3 meant categorically  to banish          privity    a  time-honored  concept  that collapses  distinctions          between form and substance in respect to party  status   from use          in conjunction with principles of res judicata.                    This  conclusion  is  firmly  supported  not  only   by          respectable  precedent  but  also  by  practical  considerations.          Notwithstanding  the  Montana dictum,  several  courts, including                                _______          this court, continue to apply res judicata to nonparties when the          circumstances  warrant.    See,  e.g., Aunyx,  978  F.2d  at  7-8                                     ___   ____  _____          (applying res judicata to preclude the alter ego of a corporation          from relitigating); In re Air Crash at Dallas/Fort Worth Airport,                              ____________________________________________          861  F.2d 814, 816-18 (5th  Cir. 1988) (applying  res judicata to          bar  decedent's daughter from relitigating); see also Restatement                                                       ___ ____ ___________          (Second) of Judgments    40,  41 (endorsing application of  claim          _____________________          preclusion  to nonparties  in specified  circumstances).   In the          same vein, courts continue routinely to formulate res judicata as          a doctrine that bars parties "or their privies" from relitigating          claims.   See, e.g.,  Allen, 449  U.S. at 94;  Kale, 924  F.2d at                    ___  ____   _____                    ____          1165; In re Air Crash, 861 F.2d at 816; United  States v. Athlone                _______________                   ______________    _______          Indus., Inc.,  746 F.2d 977, 983  (3d Cir. 1984); Lee  v. City of          ____________                                      ___     _______          Peoria, 685 F.2d 196, 199 (7th Cir. 1982).          ______                    There  are  also strong  practical  considerations that          counsel against  blind  adherence to  the  Montana dictum.    The                                                     _______                                        ____________________               3While the doctrines of res judicata and collateral estoppel          have been said to "share a  distinct family resemblance," Fiumara                                                                    _______          v. Fireman's Fund Ins. Cos., 746 F.2d 87, 90 n.1 (1st Cir. 1984),             ________________________          they are nonetheless distinct, see Parklane Hosiery Co. v. Shore,                                         ___ ____________________    _____          439 U.S. 322, 326 n.5 (1979) (delineating differences).                                          10          doctrine of  res judicata serves many desirable  ends, among them          finality and efficiency.   See Montana, 440 U.S.  at 153.   Logic                                     ___ _______          suggests  that the  doctrine can  achieve its  goals only  if its          preclusive   effects  occasionally   can   reach   persons   who,          technically,  were  not  parties  to the  original  action.   The          pitfalls of  a more  mechanical rule  are  obvious; making  party          status a sine qua non for the operation of res judicata opens the                   ____ ___ ___          door  to countless  varieties of  manipulation, including  claim-          splitting, suits by proxy, and forum-shopping.                    Finally,  reading  Montana's  dictum  as  categorically                                       _______          eliminating res judicata whenever there are  technically distinct          parties is at  loggerheads with the hoary concept  of privity   a          concept  long  since  integrated   into  the  legal  lexicon  and          routinely applied in analogous situations.   See, e.g., Stacy  v.                                                       ___  ____  _____          Thrasher, 47  U.S. 44, 51  (1848) (applying privity  to determine          ________          the binding  effect of  court judgments); Wallingsford  v. Larcon                                                    ____________     ______          Co.,  237  F.2d 904,  906 (8th  Cir.  1956) (applying  privity to          ___          determine  the extent  of  the res  judicata  effect of  a  prior          judgment).   We are loath  to assume  that the Court  intended to          wrest  this concept from the  jurisprudence of res  judicata by a          casual  observation,  bereft  of  any  meaningful  discussion  or          explanation.  As  a rule, appellate courts  do not operate in  so          Delphic a fashion.   See, e.g., United States  v. Zapata, 18 F.3d                               ___  ____  _____________     ______          971, 977  (1st Cir. 1994) (rejecting argument that "an unheralded          dictum"  in  a  Supreme  Court  opinion  altered  settled  Fourth          Amendment concepts and thereby "worked a sea change in the law").                                          11                    We  find this  combination  of  precedent, policy,  and          practicalities to  be irresistible.  Consequently,  we hold that,          under  federal law, res judicata can sometimes operate to bar the          maintenance of an  action by persons  who, technically, were  not          parties to  the  initial action  (to which  preclusive effect  is          attributed).   Nonetheless,  we appreciate  that this is  a murky          corner  of the  law  and caution  the  district courts  to  tread          gingerly in applying res judicata to nonparties.4                    2.  Privity.  The most familiar mechanism for extending                    2.  Privity.                        _______          res   judicata   to   nonparties   without   savaging   important          constitutional  rights is the concept of privity   a concept that          furnishes a  serviceable framework for  an exception to  the rule          that res judicata only bars relitigation of claims by persons who          were parties to  the original  litigation.  See  Meza v.  General                                                      ___  ____     _______          Battery Corp., 908 F.2d 1262, 1266 (5th Cir. 1990); see also NLRB          _____________                                       ___ ____ ____          v.  Donna-Lee Sportswear  Co., 836  F.2d 31,  34 (1st  Cir. 1987)              _________________________          (applying same exception in connection with issue preclusion).                    Although  privity can  be elusive,  this case  does not          require us to build four walls around it.  Here, the res judicata          defense is based not  on some exotic doctrinal refinement  but on          commonly  accepted principles  of how  privity operates  to bring          about  nonparty preclusion.   The  theory underlying  defendants'                                        ____________________               4The  perils of  nonparty  preclusion are  real.   Prominent          among them is the  prospect that an overly expansive  arrangement          of  the  concept,   or  too   free  use  of   it,  may   endanger          constitutional rights.   See Meza v.  General Battery Corp.,  908                                   ___ ____     _____________________          F.2d 1262, 1266 (5th Cir. 1990) (approving concept but noting the          due  process concerns  implicit in  the  ideal that,  in general,          every party is entitled to her own "day in court").                                          12          iteration of the defense is that privity exists (and,  therefore,          nonparty  preclusion potentially  obtains) if  a nonparty  either          substantially  controlled  a party's  involvement in  the initial          litigation  or,  conversely, permitted  a  party  to the  initial          litigation to  function  as his  de  facto representative.5    We                                           __  _____          accept   defendants'  theoretical   premise,  but,   after  close          perscrutation  of the record as a whole, we conclude that neither          stripe of privity exists here.                                 Substantial Control                                 Substantial Control                                 ___________________                    The  doctrine of  res judicata  rests upon  the bedrock          principle that, for  claim preclusion to apply,  a litigant first          must have had a full and fair opportunity to litigate his  claim.          See Fiumara v.  Fireman's Fund  Ins. Cos., 746  F.2d 87, 92  (1st          ___ _______     _________________________          Cir. 1984);  see also 18 Wright  & Miller, supra,    4449, at 417                       ___ ____                      _____          (noting  "[o]ur  deep-rooted  historic  tradition  that  everyone          should  have his own day in court"); cf. Blonder-Tongue, 402 U.S.                                               ___ ______________          at 328 (commenting that it is sufficient to afford a litigant one          "full  and  fair  opportunity   for  judicial  resolution"  of  a          particular issue).  If a nonparty either participated vicariously          in the  original litigation  by exercising  control over  a named          party  or had  the opportunity  to exert  such control,  then the          nonparty  effectively  enjoyed  his  day  in  court,  and  it  is          appropriate to impute to him the legal attributes of party status          for purposes of claim  preclusion.  See United States  v. Bonilla                                              ___ _____________     _______                                        ____________________               5The sobriquet  "virtual representation" frequently  is used          to  describe this  type  of de  facto  representation.   It  fits                                      __  _____          equally well under the label "representation by proxy."                                          13          Romero, 836 F.2d  39, 44 (1st Cir. 1987),  cert. denied, 488 U.S.          ______                                     _____ ______          817 (1988);  see also 18 Wright  & Miller, supra,    4451, at 430                       ___ ____                      _____          (arguing  that "[p]reclusion is fair so  long as the relationship          between the nonparty and  a party was such that  the nonparty had          the same  practical  opportunity to  control  the course  of  the          proceedings that  would be available  to a party");  cf. Montana,                                                               ___ _______          440  U.S.  at 154  (finding  issue  preclusion appropriate  "when          nonparties  assume control over  litigation in which  they have a          direct  financial  or  proprietary  interest  and  then  seek  to          redetermine issues previously resolved"); Restatement (Second) of          Judgments   39 (similar).6                    Substantial control  means what the  phrase implies; it          connotes the  availability of  a significant degree  of effective          control  in the prosecution  or defense  of the  case    what one          might term, in the  vernacular, the power   whether  exercised or          not    to call the shots.7   See Rumford Chem.  Works v. Hygienic                                       ___ ____________________    ________          Chem. Co., 215 U.S. 156, 160 (1909) (holding that  the concept of          _________                                        ____________________               6We do not think  that comment b to section  39, Restatement                                                                ___________          (Second)  of Judgments   39, comment b, at 383-84 (limiting scope          ______________________          of section to issue  preclusion, not claim preclusion), indicates          that  substantial  control can  never serve  as  the basis  for a          finding  of privity  when res  judicata is in  play.   Rather, we          interpret the comment as  suggesting that substantial control has          somewhat  different dimensions for  purposes of  issue preclusion          than  for purposes of claim preclusion   a proposition with which          we agree.               7Some  courts and  commentators  have suggested  that, at  a          minimum,  substantial  control  is  the  quantum  of  involvement          expected  of a  co-party.   See,  e.g.,  American Postal  Workers                                      ___   ____   ________________________          Union,  Etc. v. U.S.  Postal Serv., 736  F.2d 317,  319 (6th Cir.          ____________    __________________          1984); 1B Moore, supra,   0.411[6],  at 456.  With respect, we do                    _____  _____          not find this mode  of measurement particularly enlightening and,          hence, we decline to install it.                                          14          substantial control refers  to "the right  to intermeddle in  any          way in the conduct of  the case"); Hy-Lo Unit & Metal  Prods. Co.                                             ______________________________          v.  Remote Control Mfg.  Co., 83  F.2d 345,  350 (9th  Cir. 1936)              ________________________          (stating that substantial control means the "right to participate          and control  such prosecution or  defense"); Restatement (Second)                                                       ____________________          of  Judgments   39, comment c,  at 384 (stating that control, for          _____________          purposes of issue  preclusion, refers  to the  right to  exercise          "effective  choice  as to  the legal  theories  and proofs  to be          advanced," as  well as  "control over  the opportunity  to obtain          review"); see generally 1B Moore, supra,   0.411[6] at 456-58.                    ___ _________           _____                    As the proverb suggests, a picture is sometimes worth a          thousand words.  Along  these lines, we suspect that  the concept          of substantial control can be illustrated better by examples than          by linguistic constructs.   For instance, substantial control has          been  found in the case  of a liability  insurer that assumes the          insured's defense, see, e.g., Iacaponi v. New Amsterdam Cas. Co.,                             ___  ____  ________    ______________________          379 F.2d  311, 312 (3d  Cir. 1967), cert.  denied, 389  U.S. 1054                                              _____  ______          (1968),  an indemnitor  who participates  in defending  an action          brought  against the indemnitee, see,  e.g., Bros, Inc.  v. W. E.                                           ___   ____  __________     _____          Grace Mfg. Co.,  261 F.2d 428,  430-31 (5th Cir.  1958), and  the          ______________          owner of  a close corporation  who assumes control  of litigation          brought against  the firm,  see, e.g.,  Kreager v. General  Elec.                                      ___  ____   _______    ______________          Co., 497 F.2d 468, 471-72 (2d Cir.), cert. denied, 419 U.S.  1041          ___                                  _____ ______          (1974).   Conversely,  courts  have refused  to find  substantial          control  merely  because a  nonparty  retained  the attorney  who          represented  a party to the earlier action, see Freeman v. Lester                                                      ___ _______    ______                                          15          Coggins  Trucking, Inc., 771 F.2d 860, 864 (5th Cir. 1985); Ramey          _______________________                                     _____          v. Rockefeller, 348 F. Supp. 780, 785 (E.D.N.Y. 1972), or because             ___________          the  nonparty  assisted  in  financing the  earlier  action,  see                                                                        ___          Rumford  Chem.,  215 U.S.  at  159-60;  General  Foods  Corp.  v.          ______________                          _____________________          Massachusetts  Dep't of Pub.  Health, 648  F.2d 784,  787-88 (1st          ____________________________________          Cir. 1981), or because the nonparty testified as a witness in the          earlier action, see Benson  & Ford, Inc. v. Wanda  Petroleum Co.,                          ___ ____________________    ____________________          833 F.2d 1172, 1174-75 (5th Cir. 1987); Ponderosa Devel. Corp. v.                                                  ______________________          Bjordahl, 787 F.2d 533,  536-37 (10th Cir. 1986), or  because the          ________          nonparty procured witnesses or  evidence, see Carl Zeiss Stiftung                                                    ___ ___________________          v.  V.E.B.  Carl Zeiss,  Jena, 293  F.  Supp. 892,  921 (S.D.N.Y.              _________________________          1968), modified, 433 F.2d  686 (2d Cir. 1970), cert.  denied, 403                 ________                                _____  ______          U.S. 905 (1971), or because the nonparty furnished his attorney's          assistance,  see Cofax Corp.  v. Minn. Mining  & Mfg.  Co., 79 F.                       ___ ___________     _________________________          Supp. 842, 844 (S.D.N.Y. 1947).                    In the last analysis, there is  no bright-line test for          gauging substantial control.   The inquiry must be case-specific,          see  1B Moore,  supra,   0.411[6]  at 458, and  fact patterns are          ___             _____          almost endlessly variable.  The critical judgment cannot be based          on  isolated  facts.    Consequently,  an  inquiring  court  must          consider the  totality of the circumstances  to determine whether          they justify a  reasonable inference of a nonparty's potential or          actual involvement as a  decisionmaker in the earlier litigation.          The nonparty's  participation may  be overt  or  covert, and  the          evidence  of it may be direct or  circumstantial   so long as the          evidence as a  whole shows that the nonparty  possessed effective                                          16          control  over  a party's  conduct  of the  earlier  litigation as          measured from  a practical, as  opposed to a  purely theoretical,          standpoint.   The burden of persuasion  ultimately rests with him          who asserts that control (or the right to exercise it) existed to          such a degree as would warrant invoking nonparty preclusion.  See                                                                        ___          id.          ___                    Applying this  standard, there is no  principled way in          which it can  be said that the Gonzalez  plaintiffs substantially          controlled  the Rodriguez  plaintiffs in  regard to  the original          litigation.  The only  facts to which the district  court alluded          in ruling that nonparty  preclusion loomed involve the similarity          of the complaints at one point in time, the parties' common legal          representation, and the planned  use of some discovered materials          in both  litigations.  In our  view, these facts do  not begin to          show that the Gonzalez plaintiffs exercised any meaningful degree          of control over the course of  the Rodriguez litigation.  Nor did          they  have either  the right  or the  opportunity to  demand such          control.8                    Moreover,  the record contains much additional evidence          indicating the absence of substantial control.  No useful purpose                                        ____________________               8Admittedly, some  plaintiffs in each camp  also belonged to          an informal litigation group that helped to finance the Rodriguez          litigation  and  disseminated  information relevant  to  members'          claims.  Yet this link, whether taken by itself or in combination          with  the circumstances noted by  the district court,  is far too          fragile  to support a finding of substantial control.  See, e.g.,                                                                 ___  ____          Jenkins v. Hartford  Acc. & Indem. Co., 733 F.2d  1090, 1091 (4th          _______    ___________________________          Cir. 1984) (holding  that limited participation  will not bind  a          nonparty); General  Foods, 648 F.2d  at 788  (noting that  merely                     ______________          helping  to finance litigation will not bind a nonparty); McKeown                                                                    _______          v. Wheat, 231 F.2d 540, 543 (5th Cir. 1956) (similar).             _____                                          17          would  be served by marshalling  this evidence.   We do, however,          remark the  most telling  datum:   that the  Rodriguez plaintiffs          sought to amend their complaint to add those who later became the          Gonzalez plaintiffs  a full  half-decade after  the start of  the          litigation   a datum strongly  suggesting that appellants had  no          involvement in the initial  five years of litigation.   This lack          of participation at the early stages  of the Rodriguez litigation          is particularly  probative on  the issue of  substantial control,          for  it  was  during  this period  that  many  pivotal  strategic          decisions were made, resulting in the virtual forfeiture of  some          especially promising  causes of action (including  the mail fraud          and state-law  claims).  Obviously,  appellant had  no chance  to          share in this decisionmaking.                                Virtual Representation                                Virtual Representation                                ______________________                    The defendants also attempt  to sustain the application          of res judicata by employing principles of virtual representation          to  demonstrate  that  privity   exists.    The  attempt  stalls.          Following  defendants' itinerary  would require  us to  imbue the          theory  of virtual  representation with  a much  greater cruising          range than either the law or the facts permit.                    Although  rooted  in  the  eighteenth  century  law  of          estates, virtual  representation has  only recently emerged  as a          vehicle  for general nonparty  preclusion.   See Robert  G. Bone,                                                       ___          Rethinking the `Day in  Court' Ideal and Nonparty Preclusion,  67          ____________________________________________________________          N.Y.U. L. Rev. 193,  206-219 (1992).  Its  recent jurisprudential          history has been characterized by breadth of initial articulation                                          18          followed  by abrupt  retrenchment in  actual application.   These          pererrations,  and  the  competing  centrifugal  and  centripetal          forces that  account  for  them,  are most  easily  explained  by          reference  to the due process analyses that must guide any effort          to place  the theory into practice.  See, e.g., Meza, 908 F.2d at                                               ___  ____  ____          1266.                    The  courts that  first  rode the  warhorse of  virtual          representation  into battle  on the  res judicata  front invested          their steed  with near-magical  properties.  They  suggested that          mere identity  of interests between party  and nonparty warranted          application  of  the  theory  and,  hence,   authorized  nonparty          preclusion.  See, e.g., Aerojet-General Corp. v. Askew,  511 F.2d                       ___  ____  _____________________    _____          710, 719 (5th Cir.)  (holding that, under federal law,  "a person          may be bound by a  judgment even though not a party if one of the          parties to the suit  is so closely aligned with  his interests as          to be his  virtual representative"), cert.  denied, 423 U.S.  908                                               _____  ______          (1975).   Despite such sweeping generalities, courts soon came to          realize that, though virtual representation  was not the old gray          mare, neither should it be confused with Pegasus; finding virtual          representation based  solely on  identity of interests,  and then          deploying the  theory to justify  nonparty preclusion in  a broad          spectrum   of  cases,   would   threaten   the  core   principles          underpinning  the due process equation.  See Martin v. Wilks, 490                                                   ___ ______    _____          U.S.  755,  761-62 (1989);  Meza, 908  F.2d  at 1266.    For this                                      ____          reason,  contemporary caselaw  has placed  the theory  of virtual          representation on  a short tether,  significantly restricting its                                          19          range.   See Benson & Ford, 833  F.2d at 1175 (observing that the                   ___ _____________          theory  of  virtual representation  must  be  kept within  strict          confines); Pollard v. Cockrell, 578 F.2d 1002, 1008-09  (5th Cir.                     _______    ________          1978) (explicitly  limiting  Aerojet holding);  see generally  18                                       _______            ___ _________          Wright  & Miller, supra,    4457 at 355  (Supp. 1994) (discussing                            _____          "narrow role" that remains for virtual representation).                    The upshot is that,  today, while identity of interests          remains   a   necessary   condition   for    triggering   virtual          representation,  it is not alone a sufficient condition.  More is          required to bring  the theory to bear.9   See General  Foods, 648                                                    ___ ______________          F.2d at 789 (holding that "identity of interests" between a party          and a nonparty "does  not bind [the nonparty] to  the judgment");          Griffin v. Burns, 570 F.2d 1065, 1071 (1st Cir. 1978) (explaining          _______    _____          that   "[m]ere  similarity   of  interests   and  a   quantum  of          representation"    is    insufficient    to    trigger    virtual          representation);  Petit v. City of Chicago, 766 F. Supp. 607, 612                            _____    _______________          (N.D. Ill. 1991) (holding that "identity of interests alone . . .          is  not  sufficient to  yield a  finding  of privity");  see also                                                                   ___ ____          Benson  & Ford, 833 F.2d  at 1174-76 (declining  to find nonparty          ______________          preclusion anent an antitrust claim growing out of the same facts          where  the nonparty plaintiff testified at  the earlier trial and          had  the same attorney); see generally 18 Wright & Miller, supra,                                   ___ _________                     _____                                        ____________________               9This remains  the modern rule despite  an occasional dictum          that  a determined  advocate might  read to  the contrary.   See,                                                                       ___          e.g.,  In re Medomak  Canning Co.,  922 F.2d  895, 901  (1st Cir.          ____   __________________________          1990)   (suggesting  that   "privity   may   be  established   by          identification of  interests, even where  representation of those          interests is not authorized").                                          20            4457, at 500.                    To    say   that   a    litigant   advocating   virtual          representation,  and  seeking thereby  to  preclude  a nonparty's          suit,  must show more than  an identity of  interests is to state          the nature of the problem,  not to solve it.  Many of the ensuing          questions   questions like  "how much more?" and "what  comprises          `more'?"     seem   to  have   no  categorical   answers.     Not          surprisingly, then, the cases in which courts have dealt with the          doctrine,  taken   as  an  array,  are   resistant  to  doctrinal          rationalization  in  the  form   of  a  single  elegant  limiting          principle of the "one size fits all" variety.  There is no black-          letter rule.   See Colby v. J.C. Penney Co.,  811 F.2d 1119, 1125                         ___ _____    _______________          (7th Cir. 1987)  (commenting that "no uniform pattern has emerged          from the  cases");  Ethnic Employees  of Library  of Congress  v.                              _________________________________________          Boorstin, 751 F.2d 1405,  1411 n.8 (D.C. Cir. 1985)  (noting that          ________          the  virtual  representation  doctrine has  a  "highly  uncertain          scope");  see  also  Bone,  supra,  67  N.Y.U.  L.  Rev.  at  220                    ___  ____         _____          (acknowledging absence  of clear  organizing framework).   In the          end, virtual  representation is  best understood as  an equitable          theory rather  than as a crisp rule  with sharp corners and clear          factual predicates, see 18 Wright & Miller, supra,   4457 at 502,                              ___                     _____          such  that  a party's  status as  a  virtual representative  of a          nonparty must be determined on a case-by-case  basis, see Bonilla                                                                ___ _______          Romero, 836 F.2d at 43.          ______                    Although the need for individualized analysis persists,          a common thread  binds these variegated cases together:   virtual                                          21          representation  has  a  pronounced equitable  dimension.    Thus,          notwithstanding  identity  of  interests, virtual  representation          will not serve to bar a nonparty's claim  unless the nonparty has          had actual  or constructive  notice of the  earlier litigation,10          and  the  balance  of the  relevant  equities  tips  in favor  of          preclusion.   For  example, courts  have applied the  doctrine in          situations  in  which  a nonparty  has  given  actual or  implied          consent to  be bound by the results in a prior action, see, e.g.,                                                                 ___  ____          Boyd v. Jamaica Plain  Co-op Bank, 386 N.E.2d 775,  778-81 (Mass.          ____    _________________________          App. Ct. 1979); see also Benson & Ford, 833 F.2d at 1176 (finding                          ___ ____ _____________          "tacit agreement[s]" to be bound characteristic of cases applying          virtual  representation), or in which there  has been "an express          or  implied legal relationship in which parties to the first suit          are accountable to non-parties who file a subsequent suit raising          identical  issues," Pollard,  578 F.2d  at 1008;  see also  In re                              _______                       ___ ____  _____          Medomak  Canning  Co.,  922  F.2d  895, 900-01  (1st  Cir.  1990)          _____________________          (holding  that  creditors  were  represented by  the  trustee  in          bankruptcy,  who had  a fiduciary  relationship to  them), or  in          which certain  types of  familial relationships link  parties and          nonparties,  see, e.g., Eubanks v.  FDIC, 977 F.2d  166, 170 (5th                       ___  ____  _______     ____          Cir.  1992) (holding wife bound by  outcome of bankrupt husband's          prior action); Stone v. Williams, 970 F.2d 1043, 1058-61 (2d Cir.                         _____    ________                                        ____________________               10Notice is  a very  important factor.    With the  possible          exception of  Aerojet, 511 F.2d 710  (a case that has  since been                        _______          narrowed by the Fifth Circuit), counsel have cited  us to no case          in which a  court has precluded a nonparty, based  on a theory of          virtual  representation,  where  the  nonparty  had  not received          timely notice (actual or constructive) of the initial litigation.                                          22          1992)  (binding  decedent's  son  to a  prior  ruling  concerning          legacies), cert. denied, 113 S. Ct. 2331, or in which courts have                     _____ ______          detected  tactical  maneuvering   designed  unfairly  to  exploit          technical nonparty status  in order to  obtain multiple bites  of          the litigatory apple, see,  e.g., Petit, 766 F. Supp.  at 611-13;                                ___   ____  _____          Crane v. Comm'r of Dep't of  Agric., 602 F. Supp. 280, 286-88 (D.          _____    __________________________          Me. 1985); see also 18 Wright & Miller, supra,   4457, at 498-99;                     ___ ____                     _____          Bone, supra,  at 222.   Implicit  in all  these scenarios  is the                _____          existence of actual or constructive notice.11                    We  have considered,  and  rejected,  another  possible          common characteristic.  Some  courts have suggested that adequacy          of  representation  is also  a  condition  precedent to  nonparty          preclusion  grounded  upon virtual  representation.   See,  e.g.,                                                                ___   ____          Clark v. Amoco Prods. Co.,  794 F.2d 967, 973-74 (5th Cir.  1986)          _____    ________________          (suggesting  that virtual  representation "closely  resembles the          common law  theory of concurrent privity  . . . which  in turn is          really only [an] adequate representation of interests analysis");          Delta Air Lines, Inc.  v. McCoy Restaurants, Inc., 708  F.2d 582,          _____________________     _______________________          587 (11th  Cir. 1983) (finding no  virtual representation because          nonparty  was  not "adequately  represented");  cf.  18 Wright  &                                                          ___          Miller,  supra,     4457,  at  355-58  (1994  Supp.)  (suggesting                   _____          somewhat  cryptically that "adequate litigation" should "remain[]                                        ____________________               11To be sure, the Restatement does not require actual notice          when nonparty preclusion  stems from  a preexistent  relationship          between  party  and  nonparty.     See  Restatement  (Second)  of                                             ___          Judgments    41,  at 393.   We  suggest that  the requirement  is          omitted  in  such  a  situation  because  the  formation  of  the          underlying relationship, in and  of itself, embodies what amounts          to constructive notice of all ensuing litigation.                                          23          the  central  requirement"  for   nonparty  preclusion  based  on          principles of virtual representation).  Properly viewed, however,          adequacy  of   representation  is  not  itself   a  separate  and          inflexible  requirement  for   engaging  principles  of   virtual          representation,12 although  it  is one  of  the factors  that  an          inquiring  court  should  weigh  in  attempting  to  balance  the          equities.13                    Based  on  these  benchmarks,  the  Gonzalez plaintiffs          cannot plausibly  be said to  have been virtually  represented by          the   Rodriguez  plaintiffs   notwithstanding  the   identity  of          interests between  the two  groups.   Here, the  equities counsel          very   strongly  against   deploying   the  theory   of   virtual          representation.   In the first  place, there has  been no showing          that the  Gonzalez  plaintiffs had  timely  notice of  the  first                                        ____________________               12A contrary view would fly in the teeth of the general rule          that, in civil litigation,  the sins of the lawyer  routinely are          visited upon the  client.   See, e.g., Link  v. Wabash R.R.,  370                                      ___  ____  ____     ___________          U.S. 626, 633-36 (1961); Thibeault v. Square D Co., 960 F.2d 239,                                   _________    ____________          242 (1st  Cir. 1992).   We do not  understand why a  nonparty who          comes within the doctrinal framework for virtual representation            a  framework   in  which  party  and   nonparty  share  identical          interests,  and  that  provides  for  notice  and  a weighing  of          equitable considerations    should be treated  differently from a          party in this regard.               13We are confident that  the cases discussing the importance          of adequate representation can  be reconciled with this analysis.          For  instance,  in  McCoy,   the  prior  action  was  voluntarily                              _____                             ___________          dismissed, not determined on the merits as res judicata requires.          _________          See McCoy Restaurants, 708 F.2d at 587.  And in  Clark, the court          ___ _________________                            _____          pointed out  that the nonparties  whose suit defendant  sought to          preclude did not have  fair notice of the prior  litigation.  See                                                                        ___          Clark, 794 F.2d at 973-74.          _____                                          24          suit.14  In  the second  place, the parties'  independence    the          inescapable fact  that the Rodriguez plaintiffs  were not legally          responsible for, or in any other way accountable to, the Gonzalez          plaintiffs     weighs  heavily   against  a  finding  of  virtual          representation.15  See Benson &  Ford, 833 F.2d at 1176.   In the                             ___ ______________          third place, the  lack of  a special type  of close  relationship          between the two groups of plaintiffs (who are, for the most part,          unrelated  lambs  purportedly  fleeced   by  the  same  cadre  of          unscrupulous  sheepherders)  also  weighs against  a  finding  of          virtual representation.  See  Eubanks, 977 F.2d at 170.   Fourth,                                   ___  _______          the  fact that  the Gonzalez  plaintiffs never  consented, either          explicitly or constructively, to  be bound by the verdict  in the          earlier action is  significant, see  Benson & Ford,  833 F.2d  at                                          ___  _____________          1176, especially  since they actually initiated  the later action          while  the earlier action was  still pending.   And, finally, far          from  engaging in  tactical maneuvering  aimed at  gaining unfair          advantage, appellants sought  to join the Rodriguez action    and          were thwarted in  the effort because the  defendants objected and          the   district  court,   siding   with  the   defendants,  barred                                        ____________________               14The  first  explicit  reference  to any  of  the  Gonzalez          plaintiffs  in the papers of the Rodriguez case occurred on April          10,  1987, when the Rodriguez plaintiffs sought leave to add them          as  parties.  The district court  denied this motion on April 27,          1987.  See supra p.3.   There is nothing to indicate  that, prior                 ___ _____          thereto,  any of  the Gonzalez plaintiffs  either knew  about the          pendency of  the Rodriguez action  or had retained  the Rodriguez          plaintiffs' lawyers as their counsel.               15In  this  connection,  it  must  be  emphasized  that  the          district  court, in the person of Judge Fuste, refused to certify          the Rodriguez case as a class action.                                          25          appellants' path.                    Of course, given the discretionary character of virtual          representation, see 18 Wright & Miller, supra,    4457 at 502, we                          ___                     _____          would not conclude that a case falls outside the theory's purview          solely because  it  does not  fit snugly  into some  preconceived          niche  or mirror some established  fact pattern.   But, here, the          sequence  of events  itself  confirms  the  inappropriateness  of          bringing  virtual representation to the  fore in this  case.  The          district  court, after  refusing to  certify a  class, prohibited          appellants  from  joining  the  original   suit,  yet  thereafter          precluded  them  from  prosecuting  their  own  action.16    This          whipsawing placed appellants in an untenable position.   Short of          a class action,  with all the  concomitant safeguards that  class          certification portends, see, e.g., Fed. R. Civ. P.  23, we do not                                  ___  ____          think  that the  Due Process  Clause comfortably  can accommodate          such a paradigm.   In any  event, on the  facts of this case  the          prospect  of depriving  these plaintiffs  of  their day  in court          offends  our   collective  sense   of  justice  and   fair  play.          Consequently, we  hold that the theory  of virtual representation          cannot  be  galvanized to  preclude  appellants from  maintaining          their suit.          III.  CONCLUSION          III.  CONCLUSION                    We  need go no  further.   Because the  appellants were          neither parties to  the initial  action nor in  privity with  the                                        ____________________               16Though two different judges  made these rulings, that fact          is not of legal  consequence.  We might add  parenthetically that          it is also cold consolation to appellants.                                          26          plaintiffs therein, the district  court erred in dismissing their          suit under principles of res judicata.          Reversed  and  remanded  for   further  proceedings.    Costs  to          Reversed  and  remanded  for   further  proceedings.    Costs  to          ___________________________________________________     _________          appellants.          appellants.          __________                                          27
