Mills v. Paine Webber

Filed 4/13/06 Mills v. Paine Webber CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from an order of the Superior Court of San Diego County, Richard E. L. Strauss, Judge. Affirmed.

This action is before us on appeal for the second time.^[1] Appellants contend that the trial court erred in denying them leave to file an amended complaint naming defendants against whom judgment had already been entered and affirmed. As we will explain, the trial court correctly denied leave to amend, as the claims that appellants sought to pursue are barred by the doctrine of res judicata.

I

FACTUAL AND PROCEDURAL BACKGROUND

John T. Mills, Pete and Cam Ministri, and Juliette Goodrich^[2] were investors (collectively, Investors) in Third Eye Systems, LLC. They wrote checks payable to Third Eye Systems, LLC in March and April 2000 to purchase their investment units. Although all but one of the checks were made out to "Third Eye Systems, LLC,"^[3] the funds were deposited into the account of a different entity, Third Eye Systems Holdings, Inc.^[4]

A

Litigation of the First Amended Complaint

In March 2002, Investors and other plaintiffs (together, plaintiffs) commenced this lawsuit against (1) U.S. Bank, which received the funds into Third Eye Holdings, Inc.'s bank account; (2) the financial institutions which released the funds from plaintiffs' accounts to Third Eye Systems Holdings, Inc. (the payor banks); and (3) BT Alex. Brown, Inc., who prepared checks on behalf of Mills from Mill's brokerage account payable to "Third Eye" and "Third Eye Systems, LLC." The payor banks include the respondents here -- Paine Webber, First Union Bank of Connecticut, First Union National Bank of Maryland, and Bank One (respondents). Copies of the checks at issue were attached as exhibits to plaintiffs' complaints.

The first amended complaint alleged that "[a]lthough all of the [p]laintiffs' checks were made payable to 'Third Eye Systems, LLC' . . . the [payor banks] wrongfully (and without any authorization from [p]laintiffs) paid the face amounts of all such checks to the U.S. Bank account of 'Third Eye Systems Holdings, Inc.' " Plaintiffs alleged that they "suffered damages because they have no ownership interest in 'Third Eye Systems Holdings, Inc.' and/or their monies were not invested in the intended entity 'Third Eye Systems, LLC.' " The first amended complaint asserted claims against the payor banks for wrongful debit, breach of implied in law contract, breach of implied in fact contract, breach of written contract, "breach of duties pursuant to the Uniform Commercial Code," negligence, and conversion.

U.S. Bank and the payor banks, including each of respondents except Paine Webber, filed a demurrer to the first amended complaint. The trial court sustained the demurrer, without leave to amend. The ruling was based on the statute of limitations bar created by Code of Civil Procedure^[5] section 340, subdivision (c), which states that a one-year limitations period applies to an action "by a depositor against a bank for the payment of a forged or raised check, or a check that bears a forged or unauthorized endorsement."

Following the ruling on the demurrer, even though Paine Webber had not participated in the demurrer, plaintiffs stipulated to a dismissal of Paine Webber "predicated on the [trial courts'] earlier statute of limitations rulings." The stipulated dismissal stated that "because this dismissal is predicated on the [c]ourt's earlier statute of limitations rulings, if an appellate court reverses those rulings, then this case may also proceed against Paine Webber, as well as against [the rest of the participants in the stipulation]."

Meanwhile, litigation continued against defendant BT Alex. Brown, Inc., and plaintiffs filed successive amended complaints against that defendant.^[6] In order to appeal the demurrer ruling while the rest of the litigation continued, plaintiffs entered into a stipulated judgment against U.S. Bank and the payor banks, including all of the respondents. The stipulated judgment stated that the plaintiffs, the payor banks and U.S. Bank "stipulate to judgment being entered pursuant to Section 579."^[7] Plaintiffs appealed from the stipulated judgment.

We considered the appeal and issued a ruling, which affirmed the judgment as to the payor banks but reversed the judgment as to U.S. Bank. (Mills v. First Union National Bank of Maryland (June 24, 2004, D041686) [nonpub.] (Opinion).) We ruled that the one-year limitations period set forth in section 340, subdivision (c) applied to the claims against the payor banks because those claims all depended on the theory that checks were deposited based on unauthorized endorsements.^[8] (Opinion, pp. 5-17.) However, we ruled that the negligence claims against U.S. Bank were not governed by section 340, subdivision (c), because "that statute applies only to an action by a depositor against a payor bank for the payment of a check bearing an unauthorized endorsement." (Opinion, p. 17.) As a result of our ruling, the negligence claims against U.S. Bank were remanded, but the judgment against the payor banks remained valid. (Opinion, p. 22.)

Plaintiffs filed a petition for rehearing focusing on an argument, which plaintiffs also had made in their reply brief (see Opinion, p. 15), that some of the checks contained authorized endorsements, and that their claims did not depend on the presence of unauthorized endorsements, so that section 340, subdivision (c) should not provide the applicable limitations period. We denied the petition for rehearing without comment.

Plaintiffs filed a petition for review with the California Supreme Court, arguing again, among other things, that some of the checks contained authorized endorsements. The petition for review was denied.

B

Proceedings After Remand

Upon remand to the trial court, plaintiffs filed a fourth amended complaint against U.S. Bank and Paine Webber, which did not name any other of the payor banks. However, plaintiffs then sought leave to file a fifth amended complaint that would include claims asserted by Investors against all of those payor banks that had allegedly paid on checks containing authorized endorsements. Those payor banks were Paine Webber, First Union Bank of Connecticut, First Union National Bank of Maryland, and Bank One, i.e., respondents here. The proposed fifth amended complaint alleged that because the checks drawn on Investors' accounts with respondents contained authorized endorsements, rather than unauthorized endorsements, Investors' claims were not barred by the statute of limitations. The proposed fifth amended complaint alleged claims against respondents for wrongful debit, breach of implied in law contract, breach of implied in fact contract, and breach of written contract. Attached to the proposed fifth amended complaint were copies of the same checks that were attached to the first amended complaint.^[9]

Investors' motion for leave to file a fifth amended complaint was based on section 473, subdivision (a)(1), which provides that a court may allow an amendment to any pleading "upon any terms as may be just." In opposing the motion to amend, the payor banks argued, among other things, that they could not be sued in an amended complaint because they had already been dismissed with prejudice from the action, and the dismissal had been affirmed on appeal.

In reply, Investors argued that there was no final judgment entered against the payor banks because of the "one-judgment rule," and the payor banks were thus "still existing [parties]" in the litigation. However, Investors admitted that "[i]f there was such a final judgment, [the trial court] would not have jurisdiction to entertain this Motion because such parties would no longer be before [the] Court."

In an order dated February 4, 2005, the trial court denied leave to file a fifth amended complaint naming the payor banks.^[10] Among the grounds for its ruling, the trial court stated, "the [payor banks] have been dismissed with prejudice." The trial court rejected Investors' argument that "because of the one[‑]judgment rule, there is no final judgment of dismissal of the [payor] banks." It explained that "[a] dismissal is a final judgment as to that defendant."

The Investors then filed a motion for leave to file a sixth amended complaint in which they proposed, under section 474, to substitute respondents for the Doe defendants named in previous versions of the complaint. The trial court denied that motion in an order dated March 11, 2005, pointing out again that the payor defendants had already been dismissed with prejudice. The trial court imposed sanctions on the Investors in the amount of $2,000 pursuant to section 128.7.

The Investors filed a notice of appeal on April 4, 2005, which plainly referenced only the February 4, 2005 order denying leave to file a fifth amended complaint but not the March 11, 2005 order denying leave to file a sixth amended complaint and imposing sanctions.^[11] Because the March 11, 2005 order is not referenced in the notice of appeal, we do not review it. (See Sole Energy Co. v. Petrominerals Corp. (2005) 128 Cal.App.4th 212, 239 [" ' "where several judgments and/or orders occurring close in time are separately appealable . . . , each appealable judgment and order must be expressly specified -- in either a single notice of appeal or multiple notices of appeal -- in order to be reviewable on appeal" ' "].)

II

DISCUSSION

Investors moved for leave to file a fifth amended complaint against respondents pursuant to section 473, subdivision (a)(1), which states that the court may, "in its discretion, after notice to the adverse party, allow, upon any terms as may be just, an amendment to any pleading." "On appeal, we review a trial court's denial of leave to file an amended complaint for an abuse of discretion." (Thousand Trails, Inc. v. California Reclamation Dist. No. 17 (2004) 124 Cal.App.4th 450, 464.) " '[T]he trial court has wide discretion in allowing the amendment of any pleading, [and] as a matter of policy the ruling of the trial court in such matters will be upheld unless a manifest or gross abuse of discretion is shown.' " (Record v. Reason (1999) 73 Cal.App.4th 472, 486, citations omitted.)

A trial court is within its discretion to deny leave to amend to plead a claim that is legally barred. (See Yee v. Mobilehome Park Rental Review Bd. (1998) 62 Cal.App.4th 1409, 1429 [leave to amend properly denied where proposed claims were barred by res judicata]; Thunderburk v. United Food & Commercial Workers' Union (2001) 92 Cal.App.4th 1332, 1346 [leave to amend to plead preempted cause of action was properly denied]; Foxborough v. Van Atta (1994) 26 Cal.App.4th 217, 231 [leave to amend properly denied where amendment would be "futile" because of the statute of limitations bar].) Here, as we will explain, the claims against respondents in the proposed fifth amended complaint were barred by principles of res judicata, and thus the trial court was well within its discretion to deny leave to amend.

We begin our analysis with the observation that at the time that Investors sought to file a fifth amended complaint against respondents, a judgment had already been entered in favor of respondents in this action and was still in force. As we have explained, the parties stipulated to a judgment after the trial court sustained a demurrer on statute of limitations grounds; that judgment was appealed; we affirmed it as to the payor banks, including respondents, and the California Supreme Court denied a petition for review.^[12]

Investors dispute that a final judgment exists as to respondents. Based on the fact that the claims against U.S. Bank remained to be resolved at the time they sought leave to amend, Investors argue that there was no final judgment in this action because of the "one final judgment rule," which "prohibits review of intermediate rulings by appeal until final resolution of the case." (Griset v. Fair Political Practices Com. (2001) 25 Cal.4th 688, 697.) However, this argument fails because "[t]he one final judgment rule for appellate proceedings does not . . . prohibit separate or partial judgments against some, but not all, defendants. Such incomplete or partial dispositions are familiar in our jurisprudence. For example, section 579 allows entry of judgment against one defendant while continuing the action against another defendant." (Cuevas v. Truline Corp. (2004) 118 Cal.App.4th 56, 60-61.) "[T]here is ample authority for the proposition that the trial court, in its discretion, may enter judgment in favor of one or more defendants when all issues between those defendants and the plaintiff have been adjudicated, even though the action remains pending against those defendants who have not obtained adjudication of all issues." (Oakland Raiders v. National Football League (2001) 93 Cal.App.4th 572, 578.) Here, because Investors stipulated to a judgment under section 579, the trial court entered judgment in favor of respondents even though claims against another defendant (at that time BT Alex. Brown, Inc.) still remained active. That judgment is still valid.

Having concluded that there is a valid judgment entered in favor of respondents, we next examine whether res judicata bars the claims that Investors sought to plead against respondents in the fifth amended complaint. " 'Res judicata' describes the preclusive effect of a final judgment on the merits. [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 (Mycogen), citations omitted.) Res judicata (or "claim preclusion") " ' "precludes piecemeal litigation by splitting a single cause of action or relitigation of the same cause of action on a different legal theory or for different relief." ' " (Id. at p. 897.)

"To determine whether claim preclusion bars another action or proceeding, courts look to whether the two proceedings involve the same cause of action." (Alpha Mechanical, Heating & Air Conditioning, Inc. v. Travelers Casualty & Surety Co. of America (2005) 133 Cal.App.4th 1319, 1326 (Alpha Mechanical).) Accordingly, if the claims that Investors sought to assert against respondents in the proposed fifth amended complaint are based on the same cause of action as the claims in the first amended complaint on which judgment was entered, the newly asserted claims are barred.

"In California, the primary right theory determines whether two separate actions concern a single cause of action. [Citation.] Under this theory, ' "a 'cause of action' is comprised of a 'primary right' of the plaintiff, a corresponding 'primary duty' of the defendant, and a wrongful act by the defendant constituting a breach of that duty." ' " (Alpha Mechanical, supra, 133 Cal.App.4th at p. 1327.) " 'The most salient characteristic of a primary right is that it is indivisible: the violation of a single primary right gives rise to but a single cause of action. . . .' " (Mycogen, supra, 28 Cal.4th at p. 904.) " ' "[T]he primary right is simply the plaintiff's right to be free from the particular injury suffered. [Citation.] It must therefore be distinguished from the legal theory on which liability for that injury is premised: . . . The primary right must also be distinguished from the remedy sought[.]" ' [Citation.] ' " '[T]he harm suffered' " ' is ' " 'the significant factor' " ' in defining a primary right." (Alpha Mechanical, at p. 1327.)

Here, the claims against respondents in the proposed fifth amended complaint involve the same cause of action already litigated to judgment through the first amended complaint because both complaints assert the same injury. Both complaints identically allege that Investors "suffered damages" when funds were paid by respondents to the bank account of Third Eye Systems Holding, Inc. "because they have no ownership interest in 'Third Eye Systems Holdings, Inc.' and/or their monies were not invested in the intended entity 'Third Eye Systems, LLC.' " Because the proposed fifth amended complaint asserts the same cause of action as the first amended complaint, on which judgment was already entered in favor of respondents, the claims against respondents in the proposed fifth amended complaint are barred by principles of res judicata.

Investors argue that they should be able to pursue the claims in the proposed fifth amended complaint because those claims depend on a different factual basis, i.e., that the checks contained authorized endorsements. However, the pleading of different facts does not create a distinct cause of action when, as here, the injury sought to be redressed is the same. (Alpha Mechanical, supra, 133 Cal.App.4th at p. 1332 [" ' "if two actions involve the same injury to the plaintiff and the same wrong by the defendant then the same primary right is at stake even if in the second suit the plaintiff pleads different theories of recovery, seeks different forms of relief and/or adds new facts supporting recovery" ' "].) Moreover, even if the assertion of new facts had some relevance, the claim that the checks contained authorized endorsements is not a new claim in this litigation. As we have discussed, Investors argued in the previous appeal that the checks contained authorized endorsements, and they asserted that theory both in their petition for rehearing and their petition for review.

The case law and argument in Investors' briefing do not address the central problem with the claims alleged against respondents in Investors' proposed fifth amended complaint: those claims are barred by the doctrine of res judicata because a final judgment has already been entered in favor of respondents. Investors rely on Bank of America v. Superior Court (1942) 20 Cal.2d 697, 701, which held that, on remand, after the appellate court had sustained a demurrer to some claims for relief against defendant but reversed as to others, a trial court has discretion to allow plaintiff to amend the claims for relief against defendant that had been sustained on demurrer and affirmed. The crucial difference with this case however, is that in Bank of America no judgment against the defendant was in force after the case was remanded. The appellate court had reversed the judgment against the applicable defendant, and two claims for relief against that defendant were still being litigated. Because there was no existing judgment, res judicata was not at issue in Bank of America, and the case is thus inapposite.

Investors also rely on Parker v. Robert E. McKee, Inc. (1992) 3 Cal.App.4th 512. That case held that a plaintiff who voluntarily had dismissed a defendant earlier in the litigation because he was unable to locate the defendant, and who later substituted that defendant for one of the Doe defendants, was able to take advantage of the Doe substitution to avoid the bar of the statute of limitations. (Id. at pp. 516-518.) However, in Parker there was no final judgment entered against the defendant at the time it was added back in, and the earlier dismissal was not with prejudice. Thus, Parker did not concern the doctrine of res judicata and is accordingly inapplicable here.

Because the claims against respondents in the proposed fifth amended complaint are clearly barred by the doctrine of res judicata, the trial court properly exercised its discretion to deny leave to file a fifth amended complaint against respondents.^[13]

DISPOSITION

The order appealed from is affirmed.

IRION, J.

WE CONCUR:

McCONNELL, P. J.

O'ROURKE, J.

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^[1] Including the two petitions for a writ of mandamus that have been filed in this action (see case Nos. D046710, D046184), this case is now before us for the fourth time.

^[2] Juliette Goodrich died during the pendency of this litigation, and the executor of her estate, Donne Goodrich, is now a party.

^[3] One of the checks was made out simply to "Third Eye."

^[4] Both Investors and respondents here have separately asked us to take judicial notice of certain court records that further illuminate the history of this litigation. We hereby grant the requests as the records are all properly the subject of notice pursuant to Evidence Code section 452, subdivision (d), which permits judicial notice of state and federal court records.

^[5] All statutory references are to the Code of Civil Procedure unless otherwise specified.

^[6] Apparently, one of the payor banks, Franklin California Tax-Exempt Money Fund (Franklin), did not appear in the litigation, and thus did not participate in any of the motions or stipulations described herein, and plaintiffs continued to name Franklin as a defendant in successive versions of the complaint.

^[7] Section 579 states: "In an action against several defendants, the Court may, in its discretion, render judgment against one or more of them, leaving the action to proceed against the others, whenever a several judgment is proper."

^[8] In so ruling, we concluded that checks with unauthorized endorsements include those that contain no endorsement and those that contain only the designation " 'for deposit only.' " (Opinion, p. 5, fn. 5.)

^[9] Investors alleged that three checks contained the authorized endorsements. The first check had "For Deposit Only Credited to the Account of the Within Named Payee" stamped on the back (although as reproduced the language is illegible). The second check had "For Deposit Only" handwritten on the back with "Credited to the Account of the Within Named Payee" stamped under that. The third check had "Third Eye Systems LLC For Deposit Only" handwritten on the back. In their petition for rehearing, plaintiffs had already argued that the checks endorsed with "For Deposit Only Credited to the Account of the Within Named Payee" contain authorized endorsements. The check endorsed "Third Eye Systems, LLC For Deposit Only" was included in previous versions of the complaint, but was reproduced in those earlier versions of the complaint with the top portion of the check cut off so that the endorsement was not visible.

^[10] The trial court granted leave to amend as to U.S. Bank. That ruling is not before us.

^[11] The notice of appeal states that the Investors "hereby appeal from the portion of the attached February 4, 2005 Order which incorporates by reference the attached February 4, 2005 Tentative Ruling, which denied such Plaintiffs' Motion for Leave to File a Fifth Amended Complaint against [respondents]."

^[12] We note that the stipulation of dismissal as to Paine Webber, on which the judgment against that entity was based (but not the judgment itself), stated that "because this dismissal is predicated on the [c]ourt's earlier statute of limitations rulings, if an appellate court reverses those rulings, then this case may also proceed against Paine Webber, as well as against [the rest of the participants in the stipulation]." Paine Webber was named in the same claims for relief as the other payor banks, and we affirmed the judgment as to those claims. Thus, our reversal of the judgment as to U.S. Bank only does not provide a basis, pursuant to the stipulation of dismissal, to invalidate the judgment against Paine Webber.

^[13] Although the trial court's denial of the motion for leave to amend to file a sixth amended complaint to substitute in respondents for Doe defendants is not properly before us, we note that the doctrine of res judicata would apply equally to the claims in the proposed sixth amended complaint, as that complaint is identical to the proposed fifth amended complaint except for the substitution of the Doe defendants.