This section contains the nature of the case and procedural background.

Gargallo (D) maintained an account at Merrill (P) from 1976 until 1980 when his investments did not pan out, and losses occurred. P alleged that D owed $17,000. D refused to pay. P sued D and D countersued for negligence, misrepresentation and churning and that P had violated federal securities laws. D's claims were eventually dismissed with prejudice under Ohio Civil Rule 37 for a refusal by D to comply with P's discovery requests. D then filed a suit in federal court charging P with violating federal securities laws. This was based on the same transactions at issue in the state action. The District Court then dismissed the suit against P on res judicata grounds finding that the issues, facts, and evidence to sustain the action were identical to claims asserted in the state counterclaim that was dismissed. D appealed.

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