The U.S. Court of Appeals for the Fifth Circuit recently affirmed the U.S. District Court for the Eastern District of Louisiana’s holding that a plaintiff’s false advertising claims were barred by res judicata because they arose from the same series of transactions as a prior action that was dismissed with prejudice. Oreck Direct, LLC v. Dyson Inc., Case No. 08-30804 (5th Cir., Feb. 23, 2009) (Haynes, J).

Oreck and Dyson are direct competitors in the vacuum cleaner industry. In 2005, Oreck filed a false advertising claim under Lanham Act §43(a) and the Louisiana Unfair Trade Practices Act (LUPTA), alleging that Dyson falsely advertised features of its vacuums. Oreck did not limit its allegations to specific models of vacuums. Oreck and Dyson settled the claim, and the district court dismissed the suit (Oreck I) with prejudice. In its dismissal, the court did not incorporate by reference the parties’ binding term sheet executed prior to the dismissal, and the formal settlement agreement was negotiated and executed subsequent to dismissal.

Oreck filed a second action in 2007, alleging false advertising claims against Dyson with respect to the DC18 vacuum model, in violation of Lanham Act §43(a) and LUPTA. The U.S. District Court for the Eastern District of Louisiana granted Dyson’s motion for summary judgment based on res judicata, holding that Oreck’s claims arose out of the same series of transactions that were at issue in Oreck I.

The sole issue on appeal was whether the second action was comprised of the “same claims or causes of action” as those in Oreck I. The Fifth Circuit upheld the district court’s use of the “transactional test,” which requires the two actions be based on a common nucleus of operative fact. The Court rejected Oreck’s argument that the district court should have considered the parties’ subjective intent as reflected in their settlement agreement, because the settlement agreement was finalized after Oreck I’s dismissal and the settlement agreement broadly released Dyson from “all advertising and patent claims arising out of, and related to” Oreck I.

Because Oreck alleged the same Lanham Act and LUPTA claims in both actions and the claims in Oreck I were not limited to a particular Dyson model, the false advertising allegations with respect to the DC18 “could have been” alleged in Oreck I. On this basis, the Fifth Circuit affirmed the district court’s holding that Oreck’s false advertising claims concerning the DC18 arose from the same set of transactions as those alleged in Oreck I and were therefore barred by res judicata.