Peter Wojciechowski v. Kohlberg Ventures, LLC , 923 F.3d 685 ( 2019 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
PETER WOJCIECHOWSKI, on his own No. 17-15966
behalf and on behalf of all other
persons similarly situated, D.C. No.
Plaintiff-Appellant, 3:16-cv-06775-
MEJ
v.
KOHLBERG VENTURES, LLC, OPINION
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of California
Maria-Elena James, Magistrate Judge, Presiding
Argued and Submitted March 7, 2019
Seattle, Washington
Filed May 8, 2019
Before: Ronald M. Gould and Richard A. Paez, Circuit
Judges, and Janis Graham Jack,* District Judge.
Opinion by Judge Gould
*
The Honorable Janis Graham Jack, United States District Judge for
the Southern District of Texas, sitting by designation.
2 WOJCIECHOWSKI V. KOHLBERG VENTURES
SUMMARY **
Labor Law / Claim Preclusion
Reversing the district court’s dismissal, the panel held
that claim preclusion did not bar a claim against Kohlberg
Ventures, LLC, under the Worker Adjustment Retraining
and Notification Act because a settlement agreement
approved by the bankruptcy court in a prior class action did
not release any claims against Kohlberg.
The panel concluded that the parties in the bankruptcy
proceeding did not intend their settlement to extend to
Kohlberg. Accordingly, claim preclusion did not bar
plaintiff’s WARN Act claim against Kohlberg. The panel
remanded the case for further proceedings.
COUNSEL
Robert N. Fisher (argued), René S. Roupinian, and Jack A.
Raisner, Outten & Golden LLP, New York, New York; Gail
L. Chung, Outten & Golden LLP, San Francisco, California;
for Plaintiff-Appellant.
Daniel L. Thieme (argued), Littler Mendelson P.C., Seattle,
Washington; Michael F. McCabe and George J. Tichy II,
Littler Mendelson P.C., San Francisco, California; for
Defendant-Appellee.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
WOJCIECHOWSKI V. KOHLBERG VENTURES 3
OPINION
GOULD, Circuit Judge:
“By ‘preclud[ing] parties from contesting matters that
they have had a full and fair opportunity to litigate,’” the
related doctrines of claim and issue preclusion “protect
against ‘the expense and vexation attending multiple
lawsuits, conserv[e] judicial resources, and foste[r] reliance
on judicial action by minimizing the possibility of
inconsistent decisions.’” Taylor v. Sturgell, 553 U.S. 880,
892 (2008) (alterations in original) (quoting Montana v.
United States, 440 U.S. 147, 153–154 (1979)). 1 We consider
here whether a prior action brought by Plaintiff-Appellant
Peter Wojciechowski against nonparties to this case bars this
action against Defendant-Appellee Kohlberg Ventures LLC,
under the doctrine of claim preclusion. The previous
action—a class action—settled, and the court approved the
settlement agreement and closed the case. The settlement
agreement released Wojciechowski’s and the class’s claims
against various parties, but it explicitly did not release any
claims against Kohlberg. Kohlberg was not a party to the
agreement.
We hold that the settlement agreement—and in
particular, the intent of the settling parties—determines the
1
The terms “claim preclusion” and “issue preclusion” “have
replaced a more confusing lexicon. Claim preclusion describes the rules
formerly known as ‘merger’ and ‘bar,’ while issue preclusion
encompasses the doctrines once known as ‘collateral estoppel’ and
‘direct estoppel.’” Taylor, 553 U.S. at 892 n.5. The term “res judicata”
refers “collectively” to claim and issue preclusion. Id. at 892. For
clarity, we use the terms “claim preclusion” and “issue preclusion,” and
we are concerned here with the former.
4 WOJCIECHOWSKI V. KOHLBERG VENTURES
preclusive effect of the previous action. Because the
settlement agreement specifically did not release
Wojciechowski’s and the class’s claims against Kohlberg,
claim preclusion does not bar Wojciechowski’s current
claim. The district court erred in dismissing this action, and
we reverse and remand for further proceedings.
I2
Wojciechowski was formerly employed by ClearEdge
Power, LLC. He was terminated without notice. Six days
later, ClearEdge Power, LLC—along with its owner,
ClearEdge Power, Inc.—filed for bankruptcy.
Wojciechowski filed an adversary class action against
the ClearEdge entities in the bankruptcy court. He alleged
that the two ClearEdge entities were a “single employer”
under the Worker Adjustment and Retraining Notification
(“WARN”) Act, 29 U.S.C. §§ 2101–2109, and that the
entities violated that act when they fired him and other
employees without 60 days’ advance notice.3
2
The following recitation of facts is derived from the well-pleaded
facts in Wojciechowski’s complaint—which we accept as true at the
motion-to-dismiss stage, see Garity v. APWU Nat’l Labor Org., 828 F.3d
848, 851 n.1 (9th Cir. 2016) (citing Bell Atl. Corp. v. Twombly, 550 U.S.
544, 556 (2007))—and documents of which the district court took
judicial notice.
3
Liability under the WARN Act extends only to a person’s
“employer.” 29 U.S.C. § 2104(a)(1). But the term “employer” may
include parent and subsidiary companies “depending on the degree of
their independence” from one another and considering “(i) common
ownership, (ii) common directors and/or officers, (iii) de facto exercise
of control, (iv) unity of personnel policies emanating from a common
source, and (v) the dependency of operations.” Childress v. Darby
WOJCIECHOWSKI V. KOHLBERG VENTURES 5
Wojciechowski settled that action. Per the settlement
agreement, the class released all claims it had against
“(i) Defendants ClearEdge, Power, Inc. and ClearEdge
Power, LLC and their respective estates,” and “(ii) each of
the Defendants’ current and former shareholders, officers,
directors, employees, accountants, attorneys, representatives
and other agents, and all of their respective predecessors,
successors and assigns, excluding any third parties which
may or may not be affiliated with Defendants ClearEdge
Power, Inc. and ClearEdge Power LLC, including, but not
limited to Kohlberg Ventures LLC.” Kohlberg was not
involved in the bankruptcy proceedings or in settlement
negotiations. The bankruptcy court approved the settlement
agreement and closed the case soon after. The ClearEdge
estates paid a portion of the class members’ WARN Act
wages and benefits.
Wojciechowski then filed this putative class action. He
alleges that Kohlberg, as a “single employer” with the
ClearEdge entities, violated the WARN Act when it fired
him without advance notice. Wojciechowski seeks “an
award for the balance of the Class’[s] WARN Act wages and
benefits.” That is, he seeks what the class is owed under the
Act less the amount received from the ClearEdge estates.
Kohlberg moved to dismiss Wojciechowski’s claim on
the basis of claim preclusion. The district court granted
Kohlberg’s motion. Relevant here, the district court held
that Kohlberg could not be bound by the settlement
agreement—and the provision preserving the class’s claims
against Kohlberg—because Kohlberg was not a party to the
Lumber, Inc., 357 F.3d 1000, 1006 (9th Cir. 2004) (quoting Int’l Bd. of
Teamsters v. Am. Delivery Serv. Co., 50 F.3d 770, 775 (9th Cir. 1995)).
6 WOJCIECHOWSKI V. KOHLBERG VENTURES
adversary proceeding and did not agree to allow
Wojciechowski to split his claim.
Wojciechowski timely appealed.
II
We review de novo whether claim preclusion bars
Wojciechowski’s claim. Harris v. Cty. of Orange, 682 F.3d
1126, 1131 (9th Cir. 2012). Kohlberg must establish that
preclusion applies. Taylor, 553 U.S. at 906.
III
A
Under the doctrine of claim preclusion, “a final judgment
on the merits” in a case precludes a successive action
between “identical parties or privies” concerning “the same
‘claim’ or cause of action.” Mpoyo v. Litton Electro-Optical
Sys., 430 F.3d 985, 987 (9th Cir. 2005) (quoting Sidhu v.
Flecto Co., 279 F.3d 896, 900 (9th Cir. 2002)). However,
the claim preclusion “inquiry is modified in cases where the
earlier action was dismissed in accordance with a release or
other settlement agreement.” U.S. ex rel. May v. Purdue
Pharma L.P., 737 F.3d 908, 913 (4th Cir. 2013). 4
4
When a case is dismissed with prejudice but there is no settlement
agreement, normal claim preclusion rules apply. See Norfolk S. Corp. v.
Chevron, U.S.A., Inc., 371 F.3d 1285, 1289 (11th Cir. 2004) (“In the
absence of a settlement agreement, of course, a judgment of dismissal
pursuant to Rule 41 should be given the same res judicata effect as any
other judgment.”); see also Int’l Union of Operating Eng’rs-Empl’rs
Constr. Indus. Pension, Welfare & Training Tr. Funds v. Karr, 994 F.2d
1426, 1429 (9th Cir. 1993) (“The dismissal of the action with prejudice
constitutes a final judgment on the merits . . . .”).
WOJCIECHOWSKI V. KOHLBERG VENTURES 7
A judgment entered “based upon the parties’ stipulation,
unlike a judgment imposed at the end of an adversarial
proceeding, receives its legitimating force from the fact that
the parties consented to it.” Norfolk S. Corp. v. Chevron,
U.S.A., Inc., 371 F.3d 1285, 1288 (11th Cir. 2004). “A
settlement can limit the scope of the preclusive effect of a
dismissal with prejudice by its terms.” U.S. ex rel. Barajas
v. Northrop Corp., 147 F.3d 905, 911 (9th Cir. 1998); see
also Pactiv Corp. v. Dow Chem. Co., 449 F.3d 1227, 1231
(Fed. Cir. 2006) (noting that “parties can, in a separate
agreement, . . . reserve the right to litigate a claim that would
otherwise be barred by” claim preclusion); May v. Parker-
Abbott Transfer & Storage, Inc., 899 F.2d 1007, 1010 (10th
Cir. 1990) (commenting that “consent decrees are of a
contractual nature and, as such, their terms may alter the
preclusive effects of a judgment”); Restatement (Second) of
Judgments § 26(1)(a) (1982) (preclusion does not apply if
“[t]he parties have agreed in terms or in effect that the
plaintiff may split his claim”).
We look to the intent of the settling parties to determine
the preclusive effect of a dismissal with prejudice entered in
accordance with a settlement agreement, rather than to
general principles of claim preclusion. See F.T.C. v. Garvey,
383 F.3d 891, 898 n.7 (9th Cir. 2004) (“The basically
contractual nature of consent judgments has led to general
agreement that preclusive effects should be measured by the
intent of the parties.” (quotation omitted)); Norfolk S. Corp.,
371 F.3d at 1289 (“In determining the res judicata effect of
an order of dismissal based upon a settlement agreement, we
should . . . attempt to effectuate the parties’ intent.”). “The
best evidence of [the parties’] intent is . . . the settlement
agreement itself . . . , as interpreted according to traditional
principles of contract law.” Norfolk S. Corp., 371 F.3d at
1289; see also Purdue Pharma, 737 F.3d at 913 (“[G]iven
8 WOJCIECHOWSKI V. KOHLBERG VENTURES
the contractual nature of consent decrees and settlement
agreements, the preclusive effect of a judgment based on
such an agreement can be no greater than the preclusive
effect of the agreement itself.”); In re Prudential Ins. Co. of
Am. Sale Practice Litig., 261 F.3d 355, 366 (3d Cir. 2001)
(analyzing the terms of a class settlement to determine
whether the settlement precluded a subsequent action).
Here, Wojciechowski and the class in the prior
bankruptcy proceeding settled their WARN Act claim
against the ClearEdge entities. The bankruptcy court
approved the settlement agreement and closed the case,
giving the agreement preclusive effect. See RFF Family
P’ship, LP v. Ross, 814 F.3d 520, 532 (1st Cir. 2016) (“We
have held in cases under federal law that settlements may
have preclusive effect if there is court approval of the
settlement or there is entry of judgment with prejudice.”);
18A Charles Alan Wright et al., Federal Practice and
Procedure § 4443 (3d ed. 2018 update) (“[A] private
settlement agreement does not give rise to preclusion if it is
not transformed into a judgment. Whatever effect it has on
the future relationships between the parties derives from its
force as a contract, not from res judicata.”). The settlement
agreement released the class’s claims against the ClearEdge
entities and other parties, but it explicitly preserved claims
against “any third parties which may or may not be affiliated
with Defendants ClearEdge Power, Inc. and ClearEdge
Power LLC, including, but not limited to Kohlberg Ventures
LLC.” Under the unambiguous terms of the settlement
agreement, Wojciechowski’s and the class’s claims against
Kohlberg are not precluded here. See Klamath Water Users
Protective Ass’n v. Patterson, 204 F.3d 1206, 1210 (9th Cir.
1999) (“Contract terms are to be given their ordinary
meaning, and when the terms of a contract are clear, the
intent of the parties must be ascertained from the contract
WOJCIECHOWSKI V. KOHLBERG VENTURES 9
itself.”), as amended on denial of reh’g, 203 F.3d 1175 (9th
Cir. 2000); see also Norfolk S. Corp., 371 F.3d at 1290(“Where the plain meaning of an agreement is clear, we may
not go beyond the four corners of the document to look for
additional evidence of the drafters’ intentions.”).
B
Kohlberg does not dispute that the terms of the
agreement seemingly allow Wojciechowski to pursue his
current claim. Instead, Kohlberg contends that it cannot be
bound by the settlement agreement because it was not a party
to the adversary proceeding and did not agree to the terms of
the settlement agreement.
Kohlberg is incorrect. Two (or more) parties “may
negotiate a settlement of [a] dispute and . . . execute a release
of all claims. The release acts as a simple contract between
the two private parties . . . .” Grimes v. Vitalink Commc’ns
Corp., 17 F.3d 1553, 1557 (3d Cir. 1994). But when a court
dismisses an action because of a settlement, “the settlement
and release of claims . . . is stamped with the imprimatur of
[a] court with jurisdiction over the parties and the subject
matter of the lawsuit.” Id. The settlement and release
become a “final judgment” and “not simply a contract
entered into by . . . private parties . . . .” Id.Here, when the bankruptcy court approved the settlement
agreement in the previous action, that agreement became
entitled to preclusive effect separate and apart from any
contractual obligations it imposed on the parties. See RFF
Family P’ship, LP, 814 F.3d at 532 (“[S]ettlements may
have preclusive effect if there is court approval of the
settlement or there is entry of judgment with prejudice.”);
Barajas, 147 F.3d at 911 (“A settlement can limit the scope
of the preclusive effect of a dismissal with prejudice by its
10 WOJCIECHOWSKI V. KOHLBERG VENTURES
terms.”); Restatement (Second) of Judgments § 26(1)(b)
(preclusion does not apply if “[t]he court in the first action
has expressly reserved the plaintiff’s right to maintain the
second action.”). The agreement determines the scope of
preclusion in this action as a matter of preclusion law, not as
a matter of contract. See Wright, Federal Practice and
Procedure § 4443. Because we are not imposing any
obligations on Kohlberg as a matter of contract, it does not
matter whether Kohlberg, as a nonparty to the contract, is
bound by its terms. Instead, we consider whether the settling
parties intended to preclude Wojciechowski’s current claim
as a matter of preclusion law. As explained above, they did
not.
Kohlberg’s contention has another fundamental flaw.
Kohlberg, by raising a preclusion defense, asks us to give the
settlement agreement greater preclusive effect than the
parties intended. But as we have previously explained,
“[t]he basically contractual nature of consent judgments has
led to general agreement that preclusive effects should be
measured by the intent of the parties.” Garvey, 383 F.3d at898 n.7. We are not at liberty to give the agreement greater
preclusive effect than the parties intended. See Purdue
Pharma, 737 F.3d at 913 (“[G]iven the contractual nature of
consent decrees and settlement agreements, the preclusive
effect of a judgment based on such an agreement can be no
greater than the preclusive effect of the agreement itself.”);
Bandai Am. Inc. v. Bally Midway Mfg. Co., 775 F.2d 70, 74–
75 (3d Cir. 1985) (because Namco “was not a party to the
settlement agreement” and “was expressly excluded from
the release which that agreement contains,” “Namco cannot
use the settlement agreement or the judgment as a basis for
estopping Bandai from pursuing the causes of action pleaded
against it”); In re Princeton-N.Y. Inv’rs, Inc., 255 B.R. 376,
388 (Bankr. D.N.J. 2000).
WOJCIECHOWSKI V. KOHLBERG VENTURES 11
IV
We hold that claim preclusion does not bar
Wojciechowski’s WARN Act claim against Kohlberg
because the parties in the bankruptcy proceeding did not
intend their settlement to extend to claims against
Kohlberg. 5 It is of no moment that Kohlberg neither
consented to nor approved the agreement. Because claim
preclusion does not bar Wojciechowski’s claim, we reverse
the district court’s dismissal of his claim and remand for
further proceedings.
REVERSED AND REMANDED.
5
Because this ground is sufficient to hold that preclusion does not
apply, we do not address Wojciechowski’s other arguments.