Filed 1/29/18 Lee v. Wieder CA1/5

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FIVE

Andrew Lee filed suit against David Wieder and his company, Iniki Services, Inc., in the Alameda County Superior Court, seeking to collect unpaid amounts due on a promissory note (the Alameda litigation). The trial court dismissed the complaint with prejudice, finding the action was barred by a prior judgment in an action between Lee and Wieder in the Sonoma County Superior Court (the Sonoma litigation). We disagree with the trial court’s application of res judicata principles and find that the case should have been stayed rather than dismissed.

I. Background and Procedural History

In 2006, Wieder entered into a purchase agreement to acquire from Lee the assets of the Hayward Ace Hardware, a business located in Hayward, California. A portion of the purchase price, $317,500, was to be paid through a promissory note, with monthly payments of $3,624.40 over a term of 132 months.[1]

A. The Sonoma Litigation

In October 2013, Wieder sued Lee in the Sonoma County Superior Court, alleging Lee had continued to utilize the trade name of Hayward Ace Hardware in violation of their agreement. The complaint pled claims for breach of contract, breach of the covenant of good faith and fair dealing, and unfair competition, and sought monetary damages and injunctive relief. Lee cross-complained, alleging default on the note and seeking acceleration of the remaining principal and interest due.[2]

Following a four-day trial, a jury returned special verdicts finding that neither party had performed significant obligations required under their contract, and denied relief to either party. On posttrial motions, the trial court (Hon. Rene Chouteau) denied Lee’s motion for new trial on damages, or alternatively for additur. The court granted in part Lee’s motion for judgment notwithstanding the verdict (JNOV), holding that “Notwithstanding the jury verdict, . . . the debt of approximately $130,000 owed by [Wieder] is still owed, and payments have to be made commencing on the date of this judgment” (the Sonoma judgment). The court also ordered amounts Wieder placed on deposit with the court be paid to Lee.[3] The court determined there was no prevailing party and declined to award attorney fees to either side.[4]

B. The Alameda Litigation

In July 2016, Lee filed the instant action in the Alameda County Superior Court, alleging Wieder had failed to make monthly payments due under the note. The complaint pled a single cause of action for breach of contract, sought to accelerate the balance due on the note, and alleged damages in the amount of $142,100.19, plus attorney fees and costs. Wieder demurred on the grounds that the Sonoma County jury’s denial of relief to Lee barred the Alameda litigation; that the Sonoma litigation was a pending action on the same subject matter with no final judgment yet entered (Code Civ. Proc. § 430.10, subd. (c)); and that the court in Alameda County lacked subject matter jurisdiction while the Sonoma litigation was pending (id., § 430.10, subd. (a)). In response, Lee filed a first amended complaint, alleging a single cause of action for breach of contract based on Wieder’s failure to make payments on the note following the partial grant of JNOV in the Sonoma litigation, and alleging an accelerated balance due of $103,231.79. Wieder again demurred. Hearing on the demurrer was continued pending entry of judgment in the Sonoma litigation. On February 27, 2017, the trial court in Alameda County (Hon. Stephen Pulido) took judicial notice of the Sonoma litigation and sustained the demurrer without leave to amend, finding that the Sonoma judgment barred any new action to recover the balance on the note. The Alameda litigation was dismissed with prejudice. This appeal followed.

II. Discussion

When a demurrer is sustained, we review the complaint de novo to determine whether it alleges facts stating a cause of action under any legal theory. (Committee for Green Foothills v. Santa Clara County Bd. of Supervisors (2010) 48 Cal.4th 32, 42.) We may consider matters that have been judicially noticed. (Ibid.) To prevail on appeal from an order sustaining a demurrer, the appellant must show “that the facts pleaded are sufficient to establish every element of a cause of action and overcome all legal grounds on which the trial court sustained the demurrer.” (Intengan v. BAC Home Loans Servicing LP (2013) 214 Cal.App.4th 1047, 1052.) We review the propriety of the court’s ruling, not the validity of its legal reasoning. (Staniforth v. Judges’ Retirement System (2016) 245 Cal.App.4th 1442, 1449.) We therefore affirm the judgment if it is correct on any theory. (Ibid.)

A. Dismissal of the Alameda Litigation

The trial court’s order after hearing in the Alameda litigation appears to have focused almost exclusively on what it viewed as the preclusive effect of the Sonoma judgment, concluding that “the contract claim in [Lee’s] First Amended Complaint is barred by the [Sonoma judgment]. [Lee’s] argument that the [Sonoma judgment] is limited only to [Wieder’s] obligations to make monthly payments as of November 9, 2016, is without merit. [Lee] did not limit his [December 2013] Cross-Complaint only to the payments that [Wieder] had failed to make as of the date of the Cross-Complaint. [Lee] argued in the [Sonoma litigation] that he had the contractual right to accelerate the future payments due to [Wieder’s] default on the promissory note. [Lee] then requested that Judge Chouteau enter Judgment against [Wieder] for the entire balance of the note in his posttrial motions. Judge Chouteau denied the request when he entered the [Sonoma judgment] on November 9, 2016. [Lee’s] issues with the [Sonoma judgment] will have to be adjudicated in [its] pending appeal . . . . [Lee] cannot simultaneously pursue a claim for payments missed after November 9, 2016, by filing a new action.”

B. Res Judicata/Collateral Estoppel

1. Legal Standards

“ ‘Res judicata’ describes the preclusive effect of a final judgment on the merits. Res judicata, or claim preclusion, prevents relitigation of the same cause of action in a second suit between the same parties or parties in privity with them. Collateral estoppel, or issue preclusion, ‘precludes relitigation of issues argued and decided in prior proceedings.’ [Citation.] Under the doctrine of res judicata, if a plaintiff prevails in an action, the cause is merged into the judgment and may not be asserted in a subsequent lawsuit; a judgment for the defendant serves as a bar to further litigation of the same cause of action.” (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 896–897, fn. omitted.)

In DKN Holdings LLC v. Faerber (2015) 61 Cal.4th 813, our Supreme Court discussed the preclusive effect of judgments, and observed that its terminology in discussing the applicable principles “has been inconsistent and may have caused some confusion. We have frequently used ‘res judicata’ as an umbrella term encompassing both claim preclusion and issue preclusion, which we described as two separate ‘aspects’ of an overarching doctrine. [Citations.] . . . [¶] . . . [¶] . . . If claim preclusion is established, it operates to bar relitigation of the claim altogether. [¶] Issue preclusion prohibits the relitigation of issues argued and decided in a previous case, even if the second suit raises different causes of action. [Citation.] Under issue preclusion, the prior judgment conclusively resolves an issue actually litigated and determined in the first action. [Citation.] . . . [¶] Issue preclusion differs from claim preclusion in two ways. First, issue preclusion does not bar entire causes of action. Instead, it prevents relitigation of previously decided issues. Second, unlike claim preclusion, issue preclusion can be raised by one who was not a party or privy in the first suit. [Citation.] ‘Only the party against whom the doctrine is invoked must be bound by the prior proceeding. [Citation.]’ In summary, issue preclusion applies (1) after final adjudication (2) of an identical issue (3) actually litigated and necessarily decided in the first suit and (4) asserted against one who was a party in the first suit or one in privity with that party.” (Id. at pp. 823–825.)

2. Analysis

The Alameda County trial court order appears to rely upon res judicata/claim preclusion, finding Lee’s entire breach of contract cause of action, and his claim for the accelerated balance due on the note, barred by the prior judgment. The trial court misinterpreted the Sonoma judgment.[5]

Lee’s cross-complaint in the Sonoma litigation sought breach of contract damages, including the accelerated balance, for failure to make periodic payments due on the note. The special verdict on the cross-complaint answered only a single question, finding that Lee had failed to do “all, or substantially all, of the significant things that the contract required it [sic] to do,” and the jury addressed no other issues.[6] As entered by the court after partial grant of JNOV, the Sonoma judgment found that, while the prior payment deficiencies may have been justified by Lee’s actions and acceleration of the note precluded, the debt was not extinguished. Accordingly, approximately $38,000 in loan payments deposited by Wieder with the court during the pendency of Sonoma litigation was ordered released to Lee. While Lee failed to recover, the jury did not render a general verdict for Wieder, and no final judgment on the merits was entered in Wieder’s favor. Moreover, the Sonoma County court found there was no prevailing party in that action. Res judicata principles have no application in this context.

Estoppel/issue preclusion principles similarly fail to provide support for dismissal of the Alameda litigation. Issue preclusion requires a final adjudication of an identical issue actually litigated and necessarily decided in the first suit. (DKN Holdings LLC v. Faerber, supra, 61 Cal.4th at p. 825.) For purposes of issue preclusion, “an issue was actually litigated in a prior proceeding if it was properly raised, submitted for determination, and determined in that proceeding.” (Hernandez v. City of Pomona (2009) 46 Cal.4th 501, 511.) In the Sonoma litigation, Lee sought recovery of an accelerated balance due of the note based on Wieder’s then outstanding payment defaults. The parties litigated Lee’s right to collect this balance. Although Lee was found not to have performed all things required of him under the parties’ agreement, the jury did not make any finding of a breach by Lee sufficiently material to extinguish Wieder’s obligations under the note (see 1 Witkin, Summary of Cal. Law (11th ed. 2017) Contracts, § 877, p. 923 [“[t]he important question . . . is whether a particular breach will also give the injured party the right to refuse further performance on his or her own part, i.e., to terminate the contract[;] [t]he test is whether the breach is material, and a total or complete breach is of course material and grounds for termination by the injured party”]). In ruling on the JNOV motion, the Sonoma County court necessarily found the evidence established only a partial breach by Lee, not one that would justify termination of the contract.[7] The “final adjudication” in the Sonoma judgment was that Wieder remained liable on the note. The Sonoma County jury did not consider, much less necessarily decide, issues relating to Wieder’s postjudgment defaults, or the consequences of any such defaults. Collateral estoppel principles have no application here.

C. Exclusive Concurrent Jurisdiction

Wieder also demurred to Lee’s complaint in the Alameda litigation on grounds that the Sonoma litigation remained pending and the Sonoma County court had exclusive jurisdiction. (Code Civ. Proc., § 430.10, subds. (a), (c).)[8] “ ‘Under the rule of exclusive concurrent jurisdiction, “when two [California] superior courts have concurrent jurisdiction over the subject matter and all parties involved in litigation, the first to assume jurisdiction has exclusive and continuing jurisdiction over the subject matter and all parties involved until such time as all necessarily related matters have been resolved.” ’ ” (People ex rel. Garamendi v. American Autoplan, Inc. (1993) 20 Cal.App.4th 760, 769–770 (Garamendi).)

“A statutory plea in abatement requires that the prior pending action be ‘between the same parties on the same cause of action.’ ” (Garamendi, supra, 20 Cal.App.4th at p. 770 [Code Civ. Proc., § 430.10 is similar to the common law plea in abatement].) A demurrer raising this objection to a second action between the same parties “is strictly limited so that . . . the defendant must show that the parties, cause of action, and issues are identical, and that the same evidence would support the judgment in each case.” (5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 971, pp. 383–384.) Although Wieder asserted that the Alameda litigation alleged the same cause of action, on the same contract, using the same evidence as the Sonoma litigation, that claim was only partially correct. While the same contract was at issue, the complaint in the Alameda litigation alleged a different breach of that contract, based on different evidence of default.

Nevertheless, the judicial rule of exclusive concurrent jurisdiction “ ‘has been interpreted and applied more expansively, and therefore may apply where the narrow grounds required for a statutory plea [in] abatement do not exist. [Citation.] Unlike the statutory plea [in] abatement, the rule of exclusive concurrent jurisdiction does not require absolute identity of parties, causes of action or remedies sought in the initial and subsequent actions.’ ” (Garamendi, supra, 20 Cal.App.4th at p. 770.)

At the time the Alameda litigation was filed, the Sonoma judgment had not yet been entered, and the interpretation and application of that judgment remained in controversy. When Judge Pulido issued his February 27, 2017 dismissal order, the Sonoma judgment had been entered, but was not yet final because of the pending appeal in Wieder v. Lee, supra, A150298. Wieder had appealed the grant of partial JNOV, and Lee challenged the sufficiency of the evidence to support a finding he breached the parties’ agreement. Resolution of the issues presented in that appeal was required to determine the final scope of the Sonoma judgment and to assess the preclusive effect, or lack thereof, of the Sonoma judgment in the Alameda litigation.[9]

“ ‘An order of abatement issues as a matter of right . . . not as a matter of discretion . . . where the conditions for its issuance exist.’ [Citation.] This is the case whether a right to abatement exists under the statutory plea in abatement [citation] or the judicial rule of exclusive concurrent jurisdiction [citation]. Where abatement is required, the second action should be stayed, not dismissed.” (Garamendi, supra, 20 Cal.App.4th at pp. 770–771.) It was therefore error to sustain Wieder’s demurrer and dismiss Lee’s complaint with prejudice rather than abating the Alameda litigation.

III. Disposition

The judgment is reversed and the matter is remanded to the Alameda County Superior Court with directions to vacate the dismissal, and to enter a new and different order abating the action, pending finality of the judgment in Sonoma County Superior Court (case No. SCV-254514). Upon finality of that judgment, the court shall dissolve the stay. Lee shall recover his costs on appeal.

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BRUINIERS, J.

WE CONCUR:

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JONES, P. J.

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NEEDHAM, J.