ABF Capital v. Grove Properties

Filed 3/8/07 ABF Capital v. Grove Properties CA4/2

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION TWO

APPEAL from the Superior Court of Riverside County. Robert Schnabel, Temporary Judge,^*and Dallas Holmes, Judge. Affirm.

Brian J. Jacobs for Plaintiff and Appellant.

Green & Hall, Dennis B. Luckman and Michael J. Fairchild for Defendants and Respondents.

1. Introduction

Plaintiff and appellant ABF Capital Corporation (ABF) appeals the dismissal of its first amended complaint against defendants and respondents Grove Properties Company and one of its principals, Thomas A. Day (referred to for convenience collectively as Grove). The trial court sustained Groves demurrer without leave to amend. ABF appeals. We affirm.

2. Factual and Procedural History

The matter comes to us on a judgment of dismissal, after the trial court sustained a demurrer to the first amended complaint without leave to amend. On review in such cases, we accept as true all well-pled factual allegations of the operative complaint. (Montclair Parkowners Assn. v. City of Montclair (1999) 76 Cal.App.4th 784, 790.)

Plaintiff ABF is a Delaware corporation with its principal place of business in New York. Grove is a California general partnership. On or about December 30, 1982, Grove bought units in a limited partnership offered by Oak Energy Partners (Oak Energy), a New York limited partnership; the Oak Energy limited partnership was in the business of operating oil and gas properties in Texas and Oklahoma. Oak Energy entered into some subleases with ABF; Oak Energy was to pay Minimum Annual Royalties to ABF for these subleases. ABF would agree to let Oak Energy defer the Minimum Annual Royalty payments, however, if it delivered agreements to ABF, under which Oak Energys individual partners, such as Grove, assumed liabilities for those deferred payments. Grove apparently executed such an Assumption of Liabilities agreement with respect to each of the subleases at the same time as Oak Energy entered into the subleases.

The Assumption of Liabilities agreements were made between Grove and Oak Energy, with recitals concerning the subleases between Oak Energy and ABF: Under the Sublease, the Partnership [i.e., Oak Energy] is required to pay certain Minimum Annual Royalties on each Drilling Unit on execution of the Sublease . . . . [] Under the Sublease, the Sublessor [i.e., ABF] is willing to defer receipt of the Minimum Annual Royalties on the condition that each Partner [e.g., such as Grove] personally assumes primary liability for his pro rata share of a portion of such deferred liabilities and directs [Oak Energy] to pay a portion of sums otherwise distributable to [Grove] to [ABF] in reduction of such deferred liabilities. Under paragraph 1, Grove unconditionally assume[d] primary personal liability . . . to pay . . . that amount of any Minimum Annual Royalty payable during the first two years of the [three relevant subleases] which [Oak Energy] shall elect to defer pursuant to the [subleases]. Groves liability was based on its pro rata share in the Oak Energy partnership, subject to certain limitations. Paragraph 3 of the Assumption of Liabilities agreement provided that Grove would direct Oak Energy to make payments directly to ABF from moneys that otherwise would have been distributable to Grove, according to a formula for each of the three subleases. Paragraph 4 provided that [a]ll deferred amounts which have been assumed hereunder and have not been satisfied pursuant to Paragraph 3 and which remain unpaid shall be due and payable without interest on the twelfth anniversary of the Sublease.

The first amended complaint alleged that Oak Energy had elected to defer the Minimum Annual Royalties under each of the three subleases for the first two years and that no sums were distributable to Grove as a limited partner of [Oak Energy] or distributed to [ABF] under paragraph 3. After 12 years, none of the deferred payments had been made; ABF alleged that the amount of such deferred Minimum Annual Royalties exceeded the sum of $14,625 per Unit. ABF thus asserted that, as of December 31, 1994, Grove owed it $87,750 for unpaid Minimum Annual Royalties attributable to its six units of Oak Energy.

Plaintiffs theory was that it was an intended third party beneficiary of the Assumption of Liabilities agreement between defendants and Oak Energy. The agreement, under which ABF claims benefit, contains among other provisions a statute of limitations waiver:

7. Nature of Obligations. The obligations of [Grove] hereunder are independent of any other obligations of [Oak Energy], and a separate action or actions may be brought and prosecuted against [Grove] whether [the] action is brought against [Oak Energy] or whether [Oak Energy] is joined in any such action or actions. [Grove] waives the benefit of any statute of limitations affecting [its] liability hereunder or the enforcement thereof, and agrees that any payment of any indebtedness or other act which shall toll any statute of limitations applicable thereto shall similarly operate to toll such statute of limitations applicable to this Agreement. The liability of [Grove] hereunder shall be reinstated and revised, and the rights of [ABF] shall continue, with respect to any amount at any time paid on account of the obligations of [Oak Energy], which shall thereafter be required to be restored or returned by [ABF] upon the bankruptcy, insolvency, or reorganization of [Oak Energy] or for any other reason, all as though such amount had not been paid.

The Assumption of Liabilities agreement also contains, for purposes relevant to this appeal, a choice-of-law provision:

10. Governing Law. This Agreement is governed by and construed under the laws of the State of New York.

ABF filed its action in California on December 30, 2002, eight years after the sums allegedly became due on the unpaid deferred Minimum Annual Royalties payments. Defendants demurred to the complaint on the ground that the action was barred by the statute of limitations. The court sustained the demurrer with leave to amend.

ABF filed its first amended complaint, seeking to remedy the deficiencies in its statute of limitations pleading. Grove again demurred to the first amended complaint, asserting that plaintiff had failed to plead around the New York statute of limitations for bringing the action. The trial court again sustained the demurrer, this time without leave to amend. The trial court had found, first, that the choice-of-law provision was valid and that it must look to New York law in construing the contract. The court determined, second, that the first amended complaint was time-barred under New York law. Following this ruling, the parties asked the court to dismiss the action, so as to facilitate an appeal. The court responded that it was [s]o ordered, but apparently no formal judgment of dismissal was entered at that time (July 31, 2003). Nevertheless, notice of judgment in favor of defendants was filed on August 7, 2003.

ABF filed a notice of appeal thereafter, which became case No. E034984 before this court. On February 3, 2004, we dismissed ABFs appeal without prejudice, on the ground that ABF had failed to provide a sufficient record to show there was an appealable judgment. Our dismissal order did, nevertheless, afford plaintiff the opportunity to reinstate its appeal upon supplying further documentation establishing that an appealable order or judgment had been entered. Plaintiff failed to do so. (ABF Capital Corp. v. Grove Properties Co. (2005) 126 Cal.App.4th 204, 212 (Grove Properties).) Its appeal in case No. E034984 remained dismissed.

In the meantime, Grove filed its own appeal, in case No. E035228, from an order denying its motion for attorney fees. This court decided that appeal on January 31, 2005, and at that time ordered the trial court to issue a judgment in the matter nunc pro tunc to July 31, 2003. (Grove Properties,supra, 126 Cal.App.4th 204, 214.) The court entered a judgment of dismissal on July 15, 2005, following this courts remand, but struck the language that the judgment was nunc pro tunc to July 31, 2003.

On September 20, 2005, ABF filed a new notice of appeal from the dismissal judgment of July 15, 2005. On August 15, 2005, Groves counsel wrote to the trial court, noting the failure to enter the judgment of dismissal nunc pro tunc, as had been ordered by this courts opinion. On September 27, 2005, the trial court modified the judgment of dismissal to make it nunc pro tunc to July 31, 2003.

Based on the nunc pro tunc judgment, Grove then argued that ABFs appeal was untimely. This court asked for further briefing on the issue of the timeliness of ABFs appeal. After receiving the briefs, this court dismissed ABFs appeal as untimely, by order of December 8, 2005.

ABF moved to vacate the dismissal and to reinstate the appeal. This court granted the motion, vacated the dismissal of the appeal, and reinstated the appeal. We now proceed to the merits.

3. Analysis

I. Applicable Standards Of Review

The sustaining of a demurrer without leave to amend is reviewed de novo. The reviewing court exercises its independent judgment as to whether a cause of action has been stated as a matter of law. (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125.)

In addition, where leave to amend the pleading has been denied, the appealing party bears the burden of proving that the trial court abused its discretion in denying leave to amend. (Blank v.Kirwan (1985) 39 Cal.3d 311, 318.)

Here, the ground of demurrer was that the first amended complaint showed on its face that the statute of limitations had expired and that the claim was therefore untimely. (Guardian North Bay, Inc. v. Superior Court (2001) 94 Cal.App.4th 963, 971-972.) After sustaining the demurrer to the original complaint, the trial court permitted ABF the opportunity to amend, to see if it could somehow plead around the New York statute of limitations the court had found applicable. ABF made only one minor change in its first amended complaint, to the effect that Grove (and Day) were not residents of New York.

Which statute of limitations should apply depends in turn upon construction of the relevant contractual provisions, such as the choice-of-law provision and the waiver provision of the Assumption of Liabilities agreement. Contractual interpretation which does not depend upon extrinsic evidence presents a question of law, which we also review de novo. (Warburton/Buttner v. Superior Court (2002) 103 Cal.App.4th 1170, 1180.) We are also concerned here with choice-of-law questions and will apply the principles applicable to those questions as more fully explained below.

II. The Choice-Of-Law Provision Is Enforceable

California is the forum state for this litigation. When California courts are faced with choice-of-law questions, they employ a governmental interests approach to [such] questions. (Janzen v. Workers Comp. Appeals Bd. (1997) 61 Cal.App.4th 109, 115, fn. 3.) Two different strands of analysis are available, depending upon whether the parties have included a choice-of-law provision in the contract. Here, ABF seeks benefit under the Assumption of Liabilities agreement. That agreement did include a choice-of-law provision, that the agreement was to be construed under New York law.

According to Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459 (Nedlloyd), when a bargained-for choice-of-law provision has been included in a contract, California applies an analysis under the Restatement Second of Conflict of Laws (Restatement), section 187. (Nedlloyd, supra, 3 Cal.4th 459, 464-465; see also Washington Mutual Bank v. Superior Court (2001) 24 Cal.4th 906, 914-915.) The Restatement analysis, and California law, reflects a strong policy favoring enforcement of contractual choice-of-law provisions. (Nedlloyd, supra, 3 Cal.4th 459, 464-465.)

As summarized in the Nedlloyd decision, the analytical approach adopted by Restatement section 187 requires the court first to determine either: (1) whether the chosen state has a substantial relationship to the parties or their transaction or (2) whether there is any other reasonable basis for the parties choice of law. If neither of these tests is met, that is the end of the inquiry, and the court need not enforce the parties choice of law. If, however, either test is met, the court must next determine whether the chosen states law is contrary to a fundamental policy of California. If there is no such conflict, the court shall enforce the parties choice of law. If, however, there is a fundamental conflict with California law, the court must then determine whether California has a materially greater interest than the chosen state in the determination of the particular issue . . . . [Citation.] (Nedlloyd Lines B.V. v. Superior Court, supra, 3 Cal.4th at p. 466, fns. omitted.) (Guardian Savings & Loan Assn. v. MD Associates (1998) 64 Cal.App.4th 309, 316-317.)

A. New York Has A Substantial Relationship To The Parties And The Transaction

We advert to Groves earlier appeal in this case: The express choice-of-law provision in the contract elected to apply and to construe the contract under New York law.

[T]here can be little doubt that New York has a sufficient connection to the contract and the parties to meet the substantial relationship test under Nedlloyd. Plaintiff, although a Delaware corporation, nonetheless has its principal place of business in New York. The limited partnership which defendants joined was a New York partnership. (Grove Properties, supra, 126 Cal.App.4th 204, 217.)

ABF is a resident of New York and the liability is based upon its subleases with Oak Energy, a New York limited partnership. These factors provide a reasonable basis for selecting New York law. That one of the parties resides in a foreign state gives the parties a reasonable ground for choosing that states law. (Nedlloyd Lines B.V. v. Superior Court, supra, 3 Cal.4th at p. 467; Hughes Electronics Corp. v. Citibank Delaware (2004) 120 Cal.App.4th 251, 258 [15 Cal.Rptr.3d 244], review den. Sep. 22, 2004.) The same principle should apply when the intended third party beneficiary of the contract resides in the chosen state. (ABF Capital Corp. v. Berglass (2005) 130 Cal.App.4th 825, 834-835 (Berglass).)

B. Applying New York Statute Of Limitations Law Does Not Contravene A Fundamental Policy Of California

The second part of our analysis requires us to determine whether applying the chosen states law would contravene the fundamental public policy of another state, which would provide the applicable law had the parties not made a different choice, and which has a materially greater interest in the determination of the issue at hand than does the chosen state. For the purpose of performing this analysis we assume that California law would apply [i.e., because it is the forum state] had the parties not chosen otherwise. We do so because if New York law would apply in any event, there can be no contravention of its fundamental public policy. (Berglass, supra, 130 Cal.App.4th 825, 835.)

New York law on statutes of limitations provide a six-year limitation period. (N.Y. C.P.L.R. 213.) In addition, with respect to paragraph 7 of the agreement, which purports to waive the statute of limitations, New York law generally does not permit a waiver of the statute of limitations unless it is made after a cause of action accrues. (N.Y. Gen. Oblig. Law 17-103(1).) California law provides a four-year statute of limitations for causes of action on a written contract (Code Civ. Proc.,  337) and a four-year limit on the validity of any statute of limitations waiver provision (Code Civ. Proc.,  360.5). These provisions result in a shorter six-year period under New York law than the eight-year period that would be applicable to the agreement under California law.

California allows contracting parties to both shorten and extend limitation periods and has no discernible fundamental policy against the application of other jurisdictions limitation periods. (Hambrecht & Quist Venture Partners v. American Medical Internat., Inc. (1995) 38 Cal.App.4th 1532, 1547-1549.) (Berglass, supra, 130 Cal.App.4th 825, 835.)

The choice-of-law provision in the Assumption of Liability agreement meets the standards of Nedlloyd and thus it was properly found enforceable. ABF agrees with this conclusion and concedes that the choice-of-law provision was enforceable here.

C. The New York Statute Of Limitations Applies

ABF urges that, notwithstanding Californias application of its own law concerning the question of the validity of the choice-of-law provision, the scope of the choice-of-law clause must be interpreted according to New York law and that New York law requires the California court, as the forum court, employ procedural laws of the forum state (California) allowing an eight-year statute of limitations, based on principles of New Yorks choice-of-law jurisprudence.

We reject this claim. New York principles of contractual interpretation do apply, but to import wholesale New Yorks choice-of-law principles into a determination of the scope of the choice-of-law provision (what the clause means under contractual interpretation principles) reintroduces in the back door the traditional or common law analysis of choice-of-law questions, which California has denied entry at the front.

We are not a New York court, sitting in California, bound to conduct a New York choice-of-law analysis according to which New York enforces substantive provisions of the choice-of-law clause, but not procedural matters. The California court, as the forum jurisdiction court, has already undertaken that analysis and determined that the laws of New York are applicable and enforceable, without regard to the distinction between procedural and substantive aspects of that law. (Rest.2d Conf. of Laws,  187, com. h, p. 569 [in giving effect to a choice-of-law provision, to apply the totality of (the chosen states) law including its choice-of-law rules . . . would introduce the uncertainties of choice of law into the proceedings and would serve to defeat the basic objectives, namely those of certainty and predictability, which the choice-of-law provision was designed to achieve].)

ABF argues that, under New York law, such procedural matters as the statute of limitations would be left to the law of California, the forum state. This does not mean, however, that the California statute of limitations would apply. California has applied its choice-of-law principles in the first instance, and under those principles, California law treat[s] the statute of limitations in the same manner as any other issue. (Hambrecht & Quist Venture Partners v. American Medical Internat., Inc. (1995) 38 Cal.App.4th 1532, 1543.) Under local California law, therefore, a standard choice-of-law provision (which states that a contract shall be governed by the laws of a particular jurisdiction) incorporates the statutes of limitations of the chosen state. (Id. at p. 1536.)

Accordingly, the New York statute of limitations applies. The six-year New York statute of limitations had expired well before ABF filed this action. Nothing that ABF could allege would alter the resulting bar to the cause of action. As a matter of law, the suit was barred by the statute of limitations. The trial court further did not abuse its discretion in denying leave to amend ABFs pleading further. (See Berglass, supra, 130 Cal.App.4th 825, 837.)

ABFs argument that the trial court should have rejected applicability of the New York statute of limitations, because adoption of the New York statute of limitations invalidates the waiver clause in paragraph 7 of the agreement, is without merit. As [ABF] sees it, inasmuch as New York law does not allow an agreement to waive the limitations period before the accrual of the cause of action (N.Y. Gen. Oblig. Law  17-103(1); Bayridge Air Rights v. Blitman Const. Corp. (1990) 80 N.Y.2d 777, 779 [587 N.Y.S.2d 269, 270-271, 599 N.E.2d 673]), rules of contract construction require that the trial court not apply New York law. The argument defies reason. There is no rule of contract constructionin either New York or Californiathat requires a court to harmonize two contractual provisions when one is void from the outset as against public policy. (Berglass, supra, 130 Cal.App.4th 825, 836-837.)

ABF filed its action eight years after its rights to enforce the contract accrued. This was well beyond the New York statute of limitations and the action was barred. The waiver clause was unlawful under New York law because it had been entered into before any right of action accrued and thus did not extend or toll the statute of limitations. ABFs action was barred. The trial court correctly sustained the demurrer and, because ABF could plead nothing to avoid the statute, properly denied leave to amend.

III. ABF Is Collaterally Estopped From Litigating The Statute Of Limitations Issue

Not only is ABFs claim defeated on the merits, ABF is also precluded from litigating the issue because the identical matter has already been determined adversely to it in other actions.

Issues which have already been argued and decided in prior proceedings may not be relitigated. (Lucido v. Superior Court (1990) 51 Cal.3d 335, 341 (Lucido).) Collateral estoppel doctrine applies if certain threshold requirements are met: First, the issue sought to be precluded from relitigation must be identical to that decided in a former proceeding. Second, this issue must have been actually litigated in the former proceeding. Third, it must have been necessarily decided in the former proceeding. Fourth, the decision in the former proceeding must be final and on the merits. Finally, the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding. (Ibid.)

ABFs claim here is identical to claims already decided in other proceedings. In ABF Capital Corp. v. Osley (9th Cir. 2005) 414 F.3d 1061 (Osley), a federal district court, under diversity jurisdiction, ruled that a New York choice-of-law clause contained in Assumption of Liability agreements identical to those involved here was enforceable, and that under New York law (1) ABFs claim was time-barred and (2) the waiver provision was invalid. (Id. at p. 1063.)

In Berglass, supra, 130 Cal.App.4th 825, the California Court of Appeal affirmed a trial court ruling holding an identical claim under an identical agreement time-barred. (Id. at p. 837.)

ABFs claim in each of these proceedings was the same as the claim here. The decisions in the other cases were made on the merits and were fully adjudicated. The issue was necessarily decided, adversely to ABF, in each of these instances. Each of these decisions was final, and ABF, an identical party in this case, had been a party in each of the other two cases. Grove met its burden under Lucido to establish the requirements for collateral estoppel.

In response, ABF protests that the Osley and Berglass cases were filed concurrently with the instant action and that they therefore do not constitute prior proceedings for purposes of collateral estoppel doctrine.^[1] This contention is without merit. Where two actions involving the same issue are pending at the same time, it is not the final judgment in the first suit, but the first final judgment, although it may be rendered in the second suit, that renders the issue resjudicata in the other court. (Domestic & Foreign Pet. Co., Ltd. v. Long (1935) 4 Cal.2d 547, 562.) A final judgment for purposes of collateral estoppel includes any prior adjudication of an issue in another action that is determined to be sufficiently firm to be accorded conclusive effect. (Rest.2d Judgments,  13; Sandoval v. Superior Court (1983) 140 Cal.App.3d 932, 936.)

4. Disposition

For the reasons stated, the judgment is affirmed. Costs are awarded to defendants and respondents Grove Properties Company et al.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

RAMIREZ

P.J.

We concur:

McKINSTER

J.

RICHLI

J.

Publication Courtesy of California attorney directory.

Analysis and review provided by Oceanside Property line Lawyers.

^* Pursuant to article VI, section 21 of the California Constitution

^[1] ABF asks this court to take judicial notice of certain documents to establish that the cases which have reached a decision were filed concurrently (i.e., on or near the same date) as the instant action. ABFs purpose in making this request is to demonstrate that, because the other proceedings were initiated or filed at approximately the same time, they cannot constitute previous suits for purposes of collateral estoppel. For the limited purpose of showing the dates these cases were filed, we grant ABFs request to take judicial notice.