Ajesh Bhakta v. Dharmendra Bhakta ( 2022 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS FEB 1 2022
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
AJESH S. BHAKTA, an individual; et al., No. 21-55328
Plaintiffs-Appellants, D.C. No.
5:20-cv-01480-PA-KS
v.
DHARMENDRA M. BHAKTA, an MEMORANDUM*
individual; et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Central District of California
Percy Anderson, District Judge, Presiding
Argued and Submitted January 12, 2022
Pasadena, California
Before: TASHIMA and M. SMITH, Circuit Judges, and S. MURPHY III,**
District Judge.
This appeal challenges how the district court construed a state court settlement
agreement and related litigation. The underlying dispute in both state and federal
court is a family business disagreement over the ownership of a hotel. The issues
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Stephen Joseph Murphy III, United States District
Judge for the Eastern District of Michigan, sitting by designation.
were first litigated in state court, and the parties reached a settlement agreement.
Plaintiffs (members of the Bhakta family) contest the validity of the settlement
agreement and bring various federal and state claims against Defendants (other
members of the Bhakta family and their business, Jayashree Krishna, Inc.) based on
the same underlying state court disputes. Because the parties are familiar with the
facts, we do not recount them here, except as necessary to provide context to our
ruling. We have jurisdiction pursuant to 28 U.S.C. § 1291 and review a district
court’s dismissal under Federal Rule of Civil Procedure 12(b)(6) de novo. See Curtis
v. Irwin Indus., Inc., 913 F.3d 1146, 1151 (9th Cir. 2019).
The district court erred in holding that Plaintiffs’ federal lawsuit was
precluded by the prior state court litigation. Under California law, the doctrine of
claim preclusion requires that the prior proceedings (1) present identical claims or
issues, (2) constitute a final judgment on the merits, and (3) involve the same parties.
See Boeken v. Philip Morris USA, Inc., 230 P.3d 342, 348 (Cal. 2010). There was
no final judgment in the state case.
Under California law, “[a] dismissal with prejudice following a settlement
constitutes a final judgment on the merits.” Estate of Redfield, 124 Cal. Rptr. 3d
402, 407 (Ct. App. 2011). Although the California Superior Court dismissed the
state case with prejudice and entered a settlement pursuant to California Code of
Civil Procedure Section 664.6, it did not enter a judgment, which is required to
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effectuate a Section 664.6 settlement. See DeSaulles v. Cmty. Hosp. of Monterey
Peninsula, 370 P.3d 996, 1004 (Cal. 2016) (“[S]ettlement agreements pursuant to
section 664.6 . . . result not only in contractual agreements but also in judgments
that conclusively resolve the issues between the parties.”); see also Walton v.
Mueller, 102 Cal. Rptr. 3d 605, 609 (Ct. App. 2009). Accordingly, when Plaintiffs
tried to appeal the Superior Court’s dismissal of their case, the California Court of
Appeal dismissed Plaintiffs’ appeal without prejudice for lack of a final judgment.
“In California, a judgment is not final for purposes of res judicata or collateral
estoppel if an appeal is pending or could still be taken.” Riverside Cnty. Transp.
Comm’n v. S. Cal. Gas Co., 268 Cal. Rptr. 3d 196, 208 (Ct. App. 2020). Because
an appeal “could still be taken” in the state case, there is no final judgment. Id.; see
also Franklin & Franklin v. 7-Eleven Owners for Fair Franchising, 102 Cal. Rptr.
2d 770, 774 (Ct. App. 2000).
Defendants contend that the panel need not reach the claim preclusion issue
because Plaintiffs’ federal claims are barred by the California Civil Code Section
1542 waiver in the parties’ settlement agreement. Without a final judgment or
preclusive effect, however, the validity of the parties’ Section 1542 waiver is a
matter of contract interpretation. Jamieson v. City Council of the City of Carpinteria,
139 Cal. Rptr. 3d 48, 52 (Ct. App. 2012); see also Cal. State Auto. Ass’n. Inter-Ins.
Bureau v. Superior Ct., 788 P.2d 1156, 1159 (Cal. 1990). At the pleading stage and
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accepting Plaintiffs’ well-pleaded facts as true, the district court erred in concluding
that the contested settlement agreement’s Section 1542 waiver was enforceable. See
Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009). “Ordinarily, a district court is
empowered to enforce a settlement agreement through summary proceedings . . .
However, where the parties dispute the existence or terms of the agreement, an
evidentiary hearing is required.” Adams v. Johns-Manville Corp., 876 F.2d 702, 708
(9th Cir. 1989).
The validity of the settlement agreement is the precise issue that Plaintiffs
wish to litigate in the California Court of Appeal once they receive their long-
awaited judgment from the Superior Court. Given the overlapping issues between
the federal and state cases, on remand the district court may wish to consider staying
the case pending the state court’s resolution. See Colo. River Water Conservation
Dist. v. United States, 424 U.S. 800, 819 (1976).
REVERSED and REMANDED.
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