BORDER BUSINESS PARK, INC v. CITY OF SAN DIEGO

Filed 9/19/06

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION TWO

Story continue from Part II ……..

We next address Border’s claim that the judgment can be affirmed on the alternate theory, which it asserted at trial, that the noise, dust and fumes generated by the idling trucks was “not far removed from a direct physical intrusion” or that it amounted to a nuisance.^[1] This argument fails because the case was not submitted to the jury on that theory. Rather, the trial court instructed the jury that it had determined that the diversion of truck traffic amounted to a partial or temporary taking of the property, and that Border’s right of access to the property had been impaired as a result of the city’s actions in routing traffic to the border crossing. It instructed the jury to determine extent, if any, to which Border’s property had been decreased in value by reason of the impairment of access. That was the sole basis upon which the court instructed the jury with respect to damages resulting from the diversion of traffic; it did not instruct the jury on the nuisance theory. We cannot uphold a judgment on the basis of a legal theory which was not submitted to the jury. (McLaughlin v. National Union Fire Ins. Co., supra, 23 Cal.App.4th at p. 1146.)

Because the evidence does not support the judgment of inverse condemnation based on the traffic diversion as a matter of law, we will reverse the judgment on that cause of action as well.

THE CITY’S MOTION FOR NEW TRIAL WAS PROPERLY GRANTED

Introduction

In its cross-appeal, Border asserts that the trial court erred in granting the city’s motion for a new trial on Border’s breach of contract claim. Border contends that the court erroneously concluded that the doctrine of res judicata barred recovery for any breach which occurred before June 23, 1994, because the court was operating under the mistaken belief that there was a final judgment in a prior lawsuit between the parties. In the prior action, the court sustained without leave to amend the city’s demurrer to Border’s cross-complaint, in which it asserted the same breach of contract claims it asserted in this case. However, no judgment of dismissal was filed. Border asserts that the order sustaining the demurrer is not a final judgment and has no res judicata effect. Therefore, Border contends that we should reverse the order granting the city a new trial on the breach of contract claim.

The parties devote considerable argument to whether the court applied res judicata, as it stated in its ruling, or in reality applied collateral estoppel. The distinction between the two doctrines is significant because res judicata requires a final judgment, while an adjudication which is not a final judgment may, under some circumstances, be given preclusive effect under the doctrine of collateral estoppel. It is undisputed that there was no judgment entered in the prior lawsuit.^[2] Border contends that the distinction is significant as well because collateral estoppel applies only to issues which were actually litigated, while res judicata applies to matters which were raised as well as to matters which could have been raised. It points out that the trial court expressly stated that it was not applying collateral estoppel but res judicata, because the effect of its ruling was to preclude relitigation of some issues which were not actually litigated in the demurrer in the prior action. It argues that the court’s determination of the new trial motion cannot be sustained because there is unquestionably no final judgment which satisfies the requirements of res judicata.

We need not determine whether the court correctly described the doctrine it applied to determine that relitigation of the specified issues was precluded, nor whether it applied the doctrine correctly. As Border correctly posits, the order granting the new trial is subject to our independent review.^[3] Under that standard, we decide a legal issue without regard to the trial court’s analysis. (Ghirardo v. Antonioli, supra, 8 Cal.4th at p. 799.) We review the court’s ruling, not its reasoning, and we will uphold its ruling if it is correct on any theory of law applicable to the case. (People v. Zapien (1993) 4 Cal.4th 929, 976.)

Background

The issue arose as follows. In 1994, the city filed an action against Border to foreclose on assessment district liens. (City of San Diego v. De La Fuente Business Park, Inc. (Super. Ct. San Diego County, 1995, No. 676625).)^[4] (The parties refer to this case as “De La Fuente II.”) Border filed a cross-complaint alleging breach of the development agreement. The city obtained an order severing the cross-complaint from the foreclosure action. In February 1995, the city obtained a judgment in the foreclosure action. It then filed a demurrer to the cross-complaint on grounds that the cross-complaint failed to allege compliance with the claim presentation requirements of Government Code section 910 et seq., which the city contended was a prerequisite to the cross-complaint. Border opposed the demurrer, but after a hearing the demurrer was granted without leave to amend based on noncompliance with Government Code section 910 et seq. In May 1995, the court issued a minute order stating its ruling, but no judgment of dismissal was filed.

On June 23, 1995, Border presented a Government Code claim to the city asserting breach of the development agreement. The city denied the claim, and on September 22, 1995, Border filed the instant action, again alleging breach of the development agreement.

The city filed a motion in limine to exclude evidence of and damages for alleged breaches which occurred more than one year before June 23, 1995, the date Border filed its Government Code claim, arguing that any such breaches were time-barred.^[5] It also argued that because the issue was decided adversely to Border in the prior case, Border was estopped from denying that the Government Claims Act applied. The city erroneously asserted that the order sustaining the demurrer had been reduced to a final judgment on the merits.

The trial court denied the motion in limine, and the breach of contract cause of action was submitted to the jury based on evidence of breaches of the development agreement which occurred both before and after June 23, 1994. The jury found the city liable for breach of the agreement and awarded Border $29 million in damages. The verdict did not apportion the damages with respect to any particular alleged breach or breaches.

The city filed a motion for judgment notwithstanding the verdict and a motion for new trial. The trial court rejected the city’s argument that the entire breach of contract claim was barred by application of res judicata. However, it held that the ruling on the demurrer in the prior action conclusively established that Border had not filed a Government Code claim up to the time it filed its cross-complaint in that action. It also held that Border’s assertions that a Government Code claim was not required or that compliance with the claim requirement was waived or excused under any theory was conclusively adjudicated adversely to Border in the prior proceeding because Border could have raised those contentions in its opposition to the demurrer, but did not do so. As a result, the court held that the prior ruling established that any breach which occurred more than one year before Border filed its Government Code claim -- i.e., any breach which occurred before June 23, 1994 -- was time-barred. The court granted a new trial on both liability and damages, excluding breaches which occurred before June 23, 1994.

Direct or Collateral Estoppel Precludes Relitigation of Issues Which Were Finally Adjudicated in a Prior Proceeding Between the Same Parties

“Res judicata prohibits the relitigation of claims and issues which have already been adjudicated in an earlier proceeding. The doctrine has two components. ‘”In its primary aspect the doctrine of res judicata [or ‘claim preclusion’] operates as a bar to the maintenance of a second suit between the same parties on the same cause of action.” . . . The secondary aspect is “collateral estoppel” or “issue preclusion,” which does not bar a second action but “precludes a party to an action from relitigating in a second proceeding matters litigated and determined in a prior proceeding.”’ [Citations.]” (Kelly v. Vons Companies, Inc. (1998) 67 Cal.App.4th 1329, 1335.)

When issue preclusion arises from successive suits on different claims, it is referred to as collateral estoppel. If, as in this case, the second action is on the same claim, issue preclusion based on the earlier determination is described as direct estoppel. (Sabek, Inc. v. Engelhard Corp. (1998) 65 Cal.App.4th 992, 997; Rest.2d Judgments, § 17, com. c, pp. 149-150; Rest.2d Judgments, § 27, com. b, pp. 251-252.) Both collateral and direct estoppel have the “‘dual purpose of protecting litigants from the burden of relitigating an identical issue with the same party or his privy and of promoting judicial economy by preventing needless litigation.’ [Citation.]” (Sabek, Inc. v. Engelhard Corp., at p. 997.)

Here, the trial court precluded only relitigation of specified issues; it did not bar relitigation of Border’s breach of contract claim in its entirety, but limited the scope of the claim to damages which accrued after a certain date. The question we address, therefore, is whether the prior lawsuit precludes relitigation of those issues. If it does, we must uphold the order granting the new trial.^[6]

The Order Sustaining the Demurrer in the Prior Action Is a Final Judgment for Purposes of Issue Preclusion

It is undisputed that no judgment was entered in the prior lawsuit, and Border contends that the order sustaining the demurrer is insufficient to constitute a final judgment. However, for purposes of issue preclusion, as opposed to res judicata, “‘final judgment’ 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, italics added; see Sabek, Inc. v. Engelhard Corp., supra, 65 Cal.App.4th at p. 998; Sandoval v. Superior Court (1983) 140 Cal.App.3d 932, 936.)

The city cites two cases in which an order, rather than a judgment, was found sufficiently final for purposes of issue preclusion.^[7] In Rymer v. Hagler (1989) 211 Cal.App.3d 1171, the court held that a determination of coverage by a Workers’ Compensation Appeals Board judge was sufficiently final to preclude relitigation of the same issue in a civil proceeding based on the same industrial injury which was the subject of the workers’ compensation claim. The court reasoned that the order was a final order within the meaning of Labor Code section 5900, subdivision (a), and that deeming it a final judgment for purposes of issue preclusion served the policy underlying the doctrine of issue preclusion, i.e., protecting parties from endless litigation. (Rymer v. Hagler, at pp. 1180-1181.) Similarly, in Security People, Inc. v. Medeco Security Locks, Inc. (N.D.Cal. 1999) 59 F.Supp.2d 1040, the federal district court held that a disposition by summary judgment “is a decision on the merits, and it is as final and conclusive as a judgment after trial” for purposes of issue preclusion, even though the ruling was later vacated pursuant to a settlement. (Id. at p. 1045.) In addition, we note that courts of both this state and others have held that an arbitration award has collateral estoppel effect, “so long as the arbitration had the elements of an adjudicatory procedure.” (Kelly v. Vons Companies, Inc., supra, 67 Cal.App.4th at p. 1336.)

Border cites Service Employees International Union v. Hollywood Park, Inc. (1983) 149 Cal.App.3d 745, which holds that an order sustaining a demurrer is not a final judgment for purposes of res judicata. (Id. at p. 756.) However, Service Employees International Union v. Hollywood Park, Inc. involves claim preclusion rather than issue preclusion, and it therefore does not address the question whether an order sustaining a demurrer on substantive grounds can be deemed a final judgment for purposes of issue preclusion.

A prior adjudication of an issue in another action may be deemed “sufficiently firm” to be accorded preclusive effect based on the following factors: (1) whether the decision was not avowedly tentative; (2) whether the parties were fully heard; (3) whether the court supported its decision with a reasoned opinion; and (4) whether the decision was subject to an appeal. (Sandoval v. Superior Court, supra, 140 Cal.App.3d at p. 936; Rest.2d Judgments, § 13, com. g.) Here, the applicability of the Government Claims Act to the breach of contract claim was litigated in connection with the demurrer in the prior lawsuit, and the court issued an order, which was in no way tentative, sustaining the demurrer and stating the basis for its decision. If Border had wished to challenge the ruling, it could have requested entry of judgment and appealed the dismissal of its cross-complaint. Thus, the order sustaining the demurrer meets the criteria for a final judgment for purposes of issue preclusion. (Sandoval v. Superior Court, at p. 936.) Moreover, Border effectively acquiesced in the ruling by failing to obtain a final judgment and filing an appeal and instead promptly presenting a Government Code claim asserting the breach of contract claim. Having decided not to pursue the remedy available to it, it should not now be able to contend that the order is not a final adjudication of the issues it addressed. Under these circumstances, the order sustaining the demurrer precludes relitigation of the issues already adjudicated.

Border now seeks a ruling that breaches which occurred before June 23, 1994, were not time-barred, based on theories which it did not assert in its opposition to the demurrer. It contends that the development agreement contained an express waiver of any statute of limitations and eliminated the requirement for filing a Government Code claim; that because the development agreement is an executory contract, Border could wait until December 31, 2007, the end of contractual period, to file any claim for breach of the agreement; and that the claim is timely under the doctrine of continuing wrongs.

Issue preclusion bars relitigation of any issue which was actually litigated in the prior proceeding. (Kelly v. Vons Companies, Inc., supra, 67 Cal.App.4th at p. 1339.) For purposes of issue preclusion, however, an “issue” includes any legal theory or factual matter which could have been asserted in support of or in opposition to the issue which was litigated. (Sutphin v. Speik (1940) 15 Cal.2d 195, 202.) “‘Despite the established principle that the estoppel results only on issues actually litigated, it is often said that a judgment is binding as to all matters which were raised or which might have been raised. [Citation.] Is this latter statement incorrect as applied to subsequent suits on a different cause of action? The conflict appears to be largely one of expression, and it may be resolved if “issues” is given a reasonable meaning. Clearly a former judgment is not a collateral estoppel on issues which might have been raised but were not; just as clearly it is a collateral estoppel on issues which were raised, even though some factual matters or legal arguments which could have been presented were not.’ (3 Witkin, Cal. Procedure [former], § 63, p. 1949.)” (Bleeck v. State Board of Optometry (1971) 18 Cal.App.3d 415, 429, original italics.)^[8] Any of the contentions Border now asserts could have been raised in its opposition to the demurrer. The order sustaining the demurrer therefore precludes consideration of those contentions at this juncture.

THE CITY’S REQUEST FOR JUDICIAL NOTICE

On February 17, 2006, the city filed a request that we take judicial notice of documents filed in two cases now pending in the Superior Court of San Diego County, National Enterprises, Inc. v. City of San Diego (No. 730011), and Otay Acquisitions, L.L.C. v. City of San Diego (No. 753247). The city asserts that the plaintiffs in those cases are among the entities determined in this case to be alter egos of Roque De La Fuente II, and it asks this court to issue an opinion “clarifying” the res judicata effect of the judgment in this case on the two pending cases. We deny the request. The parties have raised no issue in this appeal concerning the alter ego finding made by the trial court, and the documents submitted by the city thus have no relevance to any issue in this appeal. Thus, any ruling we might make on the res judicata effect of the judgment in this case on cases which are not before us would be advisory and therefore beyond our jurisdiction. (People ex rel. Lynch v. Superior Court (1970) 1 Cal.3d 910, 912; Denny’s, Inc. v. City of Agoura Hills (1997) 56 Cal.App.4th 1312, 1329.)

DISPOSITION

The judgments on the inverse condemnation claim regarding the airport and on the inverse condemnation claim regarding truck traffic are reversed. The trial court is directed to enter judgment for the city on those claims. The order granting the motion of the city for a new trial on the claim of breach of contract is affirmed. Costs on appeal are awarded to the city.

CERTIFIED FOR PUBLICATION

/s/ McKinster

Acting P.J.

We concur:

/s/ Richli

J.

/s/ Gaut

J.

Publication Courtesy of California attorney referral.

Analysis and review provided by Vista Property line attorney.

^[1] The source of this theory is Los Angeles County Metropolitan Transportation Authority v. Continental Development Corp. (1997) 16 Cal.4th 694, 713.)

^[2] Both the underlying facts and the legal issues are discussed in detail below.

^[3] An order granting a new trial is normally reviewed for abuse of discretion. (Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p. 859.) However, “any determination underlying any order is scrutinized under the test appropriate to [that] determination.” (Ibid.) If a motion for new trial depends upon the resolution of a question of law, we review the order granting the motion de novo. (Ibid.) Here, the new trial motion depends on the applicability of res judicata or collateral estoppel. Both are questions of law which are reviewed independently. (Roos v. Red (2005) 130 Cal.App.4th 870, 878; Allstate Ins. Co. v. Mel Rapton, Inc. (2000) 77 Cal.App.4th 901, 907.) Therefore, we review the basis for the new trial order independently.

^[4] Border Business Park changed its name to De La Fuente Business Park in 1987 and then changed its name back to Border Business Park in 1997.

^[5] Government Code section 905 provides that all claims for money or damages against a local public agency (with exceptions not pertinent here) must be presented in accordance with the claims procedures set forth elsewhere. Government Code section 911.2, subdivision (a), provides that all claims other than a claim relating to a cause of action for death or injury to person or property shall be presented no later than one year after the accrual of the cause of action. Claims arising more than one year prior to presentation of the claim are barred. (Utility Audit Co. v. City of Los Angeles (2003) 112 Cal.App.4th 950, 960-961.)

^[6] Border contends that because the order granting new trial was based on the ground that damages were excessive, the order cannot be affirmed except on that ground, and then only if there is “no substantial basis” for the determination that damages were excessive. The order granting new trial was based on the ground that damages were excessive because the trial court erred as a matter of law by failing to accept as conclusive the ruling in a prior lawsuit that damages which accrued before June 23, 1994, were barred by the statute of limitations. If the prior lawsuit did operate as a bar to Border’s claim for damages which accrued before that date, damages were excessive as a matter of law, to the extent that they were based on the time-barred breaches.

^[7] The other cases it cites in which this “lesser” finality rule was applied all involve judgments -- either a judgment which was arguably nullified by settlement and dismissal of an appeal (Sandoval v. Superior Court, supra, 140 Cal.App.3d at pp. 936-940; Stonewall Ins. Co. v. City of Palos Verdes Estates (1996) 46 Cal.App.4th 1810, 1840), or a judgment which was not on the merits but nevertheless conclusive on the issue sought to be relitigated. (Sabek, Inc. v. Engelhard Corp., supra, 65 Cal.App.4th at p. 998.)

^[8] The quotation in Bleeck v. State Board of Optometry, supra, from the superseded edition of Witkin’s California Procedure appears verbatim in the current edition. (7 Witkin, Cal. Procedure (4th ed. 1997), Judgment, § 359, pp. 923-924.)