In Markley v. U.S. Bank NA, No. 24-1163 (10th Cir. June 24, 2025), the Tenth Circuit opens up a potential trap for the unwary, holding that if “a party could have litigated a claim in a prior lawsuit by asserting diversity jurisdiction but fails to do so,” then that claim is precluded in a second action “if the prior lawsuit arose from the same operative facts and reached a final judgment on the merits.”
“In this case, Darren Markley sued his employer, US Bank, in federal court, asserting a federal claim for age discrimination [the Age Discrimination in Employment Act, or ADEA] and a state law claim for wrongful termination.” The federal age discrimination claim created federal-question jurisdiction under 28 U.S.C. § 1331, while the state law claim was alleged to be a supplemental claim under 28 U.S.C. § 1367. “The district court resolved the federal claim in the employer’s favor but declined to exercise supplemental jurisdiction over the state law claim. That [state] claim was dismissed without prejudice.”
The Tenth Circuit originally affirmed the ADEA decision, Markley v. U.S. Bank NA, 59 F.4th 1072 (10th Cir. 2023) (Markley I), and issued a mandate.
Markley then refiled his dismissed state-law claim in Colorado state court. The bank, though, removed that case to federal court and moved to dismiss based on claim preclusion, arguing that Markley could have avoided dismissal in the original action by asserting diversity jurisdiction but failed to do so. “According to US Bank, Markley was precluded from relitigating his wrongful termination claim since it arose from the same transaction as his federal claim, and Markley I’s final judgment on the federal claim foreclosed his state law claim from moving forward in a new case.”
The district court “found that claim preclusion barred Markley from asserting his wrongful termination claim because he could have pursued that claim in the first federal suit if he had asserted diversity jurisdiction. He did not do so, and the district court concluded that he may not get a second chance to litigate that claim in a new case.”
The Tenth Circuit, once again, affirms. (Because the issue presented is the effect of the original federal judgment on this second action, federal common-law claim preclusion grounds govern.)
Plaintiff Markley argued that “Markley I did not issue a ‘final judgment on the merits’” for claim preclusion purposes “because his state law claim was dismissed without prejudice, and a dismissal without prejudice cannot be the basis for claim preclusion.” But while the original judgment did not address the specific state-law claim, it did decide the federal claim on the merits, which concerned the same operative facts as the state-law claim.
“To be sure, the state law claim was dismissed without prejudice, but that fact is immaterial since, as explained above, the district court’s final judgment included the resolution of the federal claim on the merits, and the federal claim stemmed from the same cause of action as the state law claim. As a result, the prior action— Markley I—did issue a final judgment on the merits, and the cause of action relating to his employment termination was resolved.”
Critically, the Tenth Circuit concludes that Markely had options to preserve the state-law claim. “After the district court resolved the federal claim on summary judgment and dismissed his state law claim without prejudice, Markley could have done either of two things to pursue his state law claim: (1) appeal the dismissal of the state law claim to the Tenth Circuit, as he did with his federal claim, or (2) notify the district court of diversity jurisdiction on a motion for reconsideration.” Markley took neither action, though.
“[T]he relevant question under claim preclusion is whether the plaintiff could have litigated the contested claim in a prior lawsuit.” Given the two options laid out above, the panel concludes that Markley could have preserved the claim in the original action, but muffed it by refiling the claim in state court after the federal judgment had become final.
Under general claim preclusion principles, “[i]f a plaintiff could have litigated a state law claim by asserting diversity jurisdiction but decides otherwise, he cannot assert that claim in a new lawsuit, before the same court, once the original case is resolved on the merits . . . . That is what happened here. The district court resolved Markley’s federal claim on summary judgment and closed the case after he chose not to reassert the state law claim. Markley does not get another chance now to litigate that claim before the same federal court.”
Complicating matters to a degree was the fact that Markley, in the civil cover sheet to the original action, even cited diversity as an alternative ground for jurisdiction, but then failed to allege it in his complaint. “Markley argues that the blame for failing to assert diversity jurisdiction should not fall on him but rather the district court, since the court was on notice that diversity jurisdiction existed. But Markley cites no authority for the position that district courts have the burden to assert diversity jurisdiction sua sponte when the plaintiff has advanced alternative grounds for jurisdiction . . . . Although we sympathize with Markley’s predicament, our adversarial system puts the burden on litigants—not the court—to assert the grounds for diversity jurisdiction.”
“At bottom, when Markley walked away from his federal case after his federal claim was resolved on the merits, the district court’s final judgment closed the case— and the cause of action. If Markley had asserted diversity jurisdiction to litigate his state law claim, then that cause of action would have remained live. But he did not do so. From that point forward, claim preclusion barred Markley from bringing any claim related to his termination in a new lawsuit.”
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