Boyd v. Freeman

Filed 12/20/17
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FOUR
B279246
PAULA BOYD, (Los Angeles County
Super. Ct. No. BC588216)
Plaintiff and Appellant,
v.
DAVID FREEMAN,
Defendant and Respondent.
APPEAL from an order of the Superior Court of Los
Angeles County, Teresa A. Beaudet, Judge. Reversed and
remanded with directions.
Ivie, McNeill & Wyatt and Chandler A. Parker for
Plaintiff and Appellant.
The Jamison Law Firm and Guy E. Jamison for
Defendant and Respondent.
In the underlying action, appellant Paula Boyd
asserted claims against respondent David Freeman
predicated on allegations of wrongful foreclosure. The trial
court sustained Freeman’s demurrer to Boyd’s first amended
complaint without leave to amend, reasoning that the
doctrine of res judicata barred her claims, in view of a
judgment in favor of Freeman and against Boyd in a prior
action. We conclude that the doctrine did not foreclose
Boyd’s claims because the prior judgment was not on the
merits. We therefore reverse and remand for further
proceedings.
RELEVANT FACTUAL AND PROCEDURAL
BACKGROUND
In 2005, Boyd executed a promissory note in favor of
attorney Freeman secured by a deed of trust for a property
in Glendale. Later, Freeman initiated foreclosure
proceedings that culminated in a July 16, 2012 foreclosure
sale, at which Freeman became owner of the Glendale
property.
In June 2012, while the foreclosure proceedings were
pending, Boyd initiated her prior action against attorney
Freeman (L.A. Super. Ct. Case No. BC486054). Her original
complaint asserted claims for legal malpractice, breach of
contract, breach of fiduciary duty, fraud, and declaratory
relief, predicated on allegations that after Boyd hired
Freeman to represent her in a matter, he made a “usurious”
loan to her secured by the Glendale property. According to
2
the complaint, in 2007, after Freeman attempted to arrange
for a foreclosure sale of the property, Boyd and Freeman
entered into a settlement agreement. The complaint
asserted that Boyd’s claims were for “violations that . . .
continued to occur after the settlement,” alleging that
Freeman “continued to use his legal status and his usurious
loan terms to try to take the property illegally and
wrongfully from [Boyd].” Although the complaint contained
no claim for unlawful foreclosure in connection with the
then-pending foreclosure, it alleged that Freeman had
violated Civil Code section 2924f, which is a provision of the
statutory scheme regulating nonjudicial foreclosure sales
(Civ. Code, § 2924 et seq.).1
On July 16, 2012, shortly before the foreclosure sale,
Boyd submitted an ex parte application for a temporary
1 The operation of the statutory scheme can be summarized
as follows: “When the trustor [that is, debtor] defaults on the
debt secured by the deed of trust, the beneficiary [that is,
creditor] may declare a default and make a demand on the
trustee to commence foreclosure. [Citation.] . . . Generally
speaking, the statutory, nonjudicial foreclosure procedure begins
with the recording of a notice of default by the trustee. ([Civ.
Code,] § 2924, subd. (a)(1).) After the expiration of not less than
three months, the trustee must publish, post, and mail a notice of
sale at least 20 days before the sale, and must also record the
notice of sale . . . ([Civ. Code,] §§ 2924, subds. (a)(1), (a)(2) &
(a)(3), 2924f, subd. (b)(1) . . . .) The sale and any postponement
are governed by [Civil Code] section 2924g. [Citations].”
(Kachlon v. Markowitz (2008) 168 Cal. App. 4th 316, 334-335, fn.
omitted.)
3
restraining order to enjoin the foreclosure sale. The
application asserted that the notice of default misstated the
amount due on the note, in contravention of Civil Code
section 2924, subdivision (b)(1). The trial court denied the
application.
Freeman demurred to the complaint, contending that
Boyd’s claims were time-barred under the applicable
statutes of limitations. In addition, Freeman argued that
the claims failed because the complaint’s allegations
regarding the 2007 settlement, viewed along with the note
and trust deed, demonstrated the nonusurious nature of the
loan. The trial court sustained the demurrer, but afforded
Boyd leave to amend her claims, with the exception of her
request for declaratory relief.
In March 2013, Boyd filed her first amended complaint.
The complaint asserted a claim for breach of fiduciary duty
predicated on allegations that Freeman had breached his
professional obligations as an attorney in making the
secured loan to Boyd, a claim for breach of fiduciary duty
predicated on allegations that the loan was usurious, and a
claim for restitution under the unfair competition law (UCL;
Bus. & Prof. Code, § 17200 et seq.) predicated on violations
of the California Consumers Legal Remedies Act (CLRA;
Civ. Code, § 1750 et seq.) and Freeman’s other alleged
misconduct.2 The restitution claim sought recovery of the
2 Generally, “[b]y proscribing ‘any unlawful’ business
practice, ‘[the UCL] “borrows” violations of other laws and treats
(Fn. is continued on the next page.)
4
Glendale property, alleging, inter alia, that Freeman’s
misconduct resulted “in claims of foreclosure rights not in
compliance with California law,” as well as “a purportedly
lawful but in fact void [t]rustee’s sale . . . .”
Freeman demurred to the first amended complaint on
the grounds that its claims were untimely under the
applicable statutes of limitations, and were otherwise legally
untenable. The trial court sustained the demurrer to the
first amended complaint without leave to amend, concluding
that it stated no viable claims. In October 2013, the court
entered an order dismissing the prior action, from which
Boyd noticed an appeal.
In an unpublished opinion (Boyd v. Freeman (May 19,
2015, B253500) 2015 Cal.App.Unpub. LEXIS 3449), we
affirmed the order of dismissal, agreeing with the trial court
that the claims in the first amended complaint were time-
barred insofar as they relied on a breach of fiduciary duty,
and that the UCL claim failed insofar as it relied on the
CLRA, as that statute is inapplicable to loans for the
purchase of real estate. In determining that leave to amend
had been properly denied, we noted that Boyd had not shown
that she could state a claim for wrongful foreclosure. We
stated: “[A]lthough [Boyd] refers broadly to ‘irregularities in
the . . . sale’” and inadequacy of the sale price, she offers no
them as unlawful practices’ that the [UCL] makes independently
actionable.” (Cel-Tech Communications, Inc. v. Los Angeles
Cellular Telephone Co. (1999) 20 Cal. 4th 163, 180.)
5
allegations detailing the purported misconduct, and no legal
authority showing that any such misconduct supports the
proposed claims . . . .”
On July 16, 2015, Boyd commenced the underlying
action. Her first amended complaint (FAC) contains claims
for wrongful foreclosure, vacation of the trustee’s sale and
the trustee’s deed upon sale, unjust enrichment, and quiet
title, based on allegations that Freeman “caused an illegal,
fraudulent or willfully oppressive sale” of the Glendale
property. The FAC alleges that the secured note was void --
and thus provided no basis for the sale -- because it
fraudulently stated it had been arranged by a mortgage
broker; that Freeman’s notice of default overstated the
amount in default; that he contravened Civil Code section
2924f by failing to post timely written notices of the
foreclosure sale, and “in other particulars”; and that he
bought the property at the sale for less that its true value.
Freeman demurred to the FAC, contending that under
the doctrine of res judicata, the order of dismissal in Boyd’s
prior action barred the claims in the FAC. After sustaining
the demurrer without leave to amend, the trial court entered
a judgment in favor of Freeman and against Boyd. This
appeal followed.
DISCUSSION
Boyd contends the trial court erred in sustaining the
demurrer to the FAC without leave to amend. For the
reasons discussed below, we agree.
6
A. Standard of Review
“Because a demurrer both tests the legal sufficiency of
the complaint and involves the trial court’s discretion, an
appellate court employs two separate standards of review on
appeal. [Citation .] . . . Appellate courts first review the
complaint de novo to determine whether or not the . . .
complaint alleges facts sufficient to state a cause of action
under any legal theory, [citation], or in other words, to
determine whether or not the trial court erroneously
sustained the demurrer as a matter of law. [Citation.]”
(Cantu v. Resolution Trust Corp. (1992) 4 Cal. App. 4th 857,
879, fn. omitted (Cantu).) “Second, if a trial court sustains a
demurrer without leave to amend, appellate courts
determine whether or not the plaintiff could amend the
complaint to state a cause of action. [Citation.]” (Id. at
p. 879, fn. 9.)
Under the first standard of review, “we examine the
complaint’s factual allegations to determine whether they
state a cause of action on any available legal theory.
[Citation.] We treat the demurrer as admitting all material
facts which were properly pleaded. [Citation.] However, we
will not assume the truth of contentions, deductions, or
conclusions of fact or law [citation], and we may disregard
any allegations that are contrary to the law or to a fact of
which judicial notice may be taken. [Citation.]” (Ellenberger
v. Espinosa (1994) 30 Cal. App. 4th 943, 947.)
Under the second standard of review, the burden falls
upon the plaintiff to show what facts he or she could plead to
7
cure the existing defects in the complaint. (Cantu, supra, 4
Cal.App.4th at p. 890.) “To meet this burden, a plaintiff
must submit a proposed amended complaint or, on appeal,
enumerate the facts and demonstrate how those facts
establish a cause of action.” (Ibid.)
B. Governing Principles
The key issues concern whether the order of dismissal
in the prior action barred the claims in the FAC under the
doctrine of res judicata or a related doctrine. The term “res
judicata” is often used as an umbrella term encompassing
the principles of claim preclusion and issue preclusion,
viewed as two separate aspects of a single doctrine. (DKN
Holdings LLC v. Faerber (2015) 61 Cal. 4th 813, 824 (DKN
Holdings).) “Claim preclusion, the ‘“‘primary aspect’”’ of res
judicata, acts to bar claims that were, or should have been,
advanced in a previous suit involving the same parties.
[Citation.] Issue preclusion, the ‘“‘secondary aspect’”’
historically called collateral estoppel, describes the bar on
relitigating issues that were argued and decided in the first
suit.” [Citation].) (Id. at p. 824, quoting Boeken v. Philip
Morris USA, Inc. (2010) 48 Cal. 4th 788, 797 (Boeken).)
Unlike issue preclusion, claim preclusion is directed at
“entire causes of action.” (DKN Holdings, supra, 61 Cal.4th
at p. 824.) Generally, “[c]laim preclusion arises if a second
suit involves: (1) the same cause of action (2) between the
same parties (3) after a final judgment on the merits in the
first suit.” (Ibid.) In contrast, “issue preclusion applies: (1)
8
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 p. 825.)
Our focus is on the bar rule of claim preclusion, which
limits litigation by plaintiffs. (Busick v. Workmen’s Comp.
Appeals Bd. (1972) 7 Cal. 3d 967, 973.) Under this rule, “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 (Mycogen Corp.), fn.
omitted.) The rule “promotes judicial economy and avoids
piecemeal litigation by preventing a plaintiff from ‘“‘splitting
a single cause of action or relitigat[ing] the same cause of
action on a different legal theory or for different relief.’”’
[Citation.]” (Ivanoff v. Bank of America, N.A. (2017) 9
Cal.App.5th 719, 727 (Ivanoff), quoting Mycogen Corp.,
supra, 28 Cal.4th at p. 897.)
For purposes of the bar rule, California law identifies a
single cause of action as “the violation of a single primary
right.” (Crowley v. Katleman (1994) 8 Cal. 4th 666, 681.)
“The plaintiff’s primary right is the right to be free from a
particular injury, regardless of the legal theory on which
liability for the injury is based. [Citation.] The scope of the
primary right therefore depends on how the injury is
defined. A cause of action comprises the plaintiff’s primary
right, the defendant’s corresponding primary duty, and the
defendant’s wrongful act in breach of that duty. [Citation.]”
(Federation of Hillside & Canyon Assns. v. City of Los
9
Angeles (2004) 126 Cal. App. 4th 1180, 1202.) Thus, under
the bar rule, a complaint may contain several counts, each of
which relies on a different legal theory, yet collectively
assert only a single violation of a specific primary right, that
is, a single cause of action. (Boeken, supra, 48 Cal.4th at
p. 798.) Whether the facts alleged in a complaint constitute
the violation of a single primary right, or more than one such
right, requires an examination of the harm asserted, in
conjunction with relevant judicial precedent. (Ivanoff, supra,
9 Cal.App.5th at p. 728; Sawyer v. First City Financial Corp.
(1981) 124 Cal. App. 3d 390, 399-403 (Sawyer).)
The bar rule is properly raised as a defense on
demurrer when all relevant facts “are within the complaint
or subject to judicial notice.”3 (Carroll v. Puritan Leasing
Co. (1978) 77 Cal. App. 3d 481, 485; see Barker v. Hull (1987)
191 Cal. App. 3d 221, 226-227.) Furthermore, that defense
may be invoked even when the prior judgment resulted from
3 “In ruling on a demurrer based on res judicata, a court may
take judicial notice of the official acts or records of any court in
this state. [Citations].” (Frommhagen v. Board of
Supervisors (1987) 197 Cal. App. 3d 1292, 1299.) Here, at
Freeman’s request, the trial court took judicial notice of portions
of the record in the first action, namely, the complaints, Boyd’s ex
parte application for a temporary restraining order, the order of
dismissal, and our decision affirming that order. Additionally,
the court took judicial notice of certain pleadings filed in other
actions. As Boyd does not challenge the taking of judicial notice,
we rely on the documents described above in evaluating the
ruling on the demurrer.
10
the sustaining of a demurrer, provided that the judgment
was “on the merits.” (Kanarek v. Bugliosi (1980) 108
Cal. App. 3d 327, 330, 331, 334.) Whether the prior judgment
was on the merits depends upon the facts of the case and the
reason for the ruling. (Ibid.) A judgment based upon the
sustaining of a demurrer for technical or formal defects is
not on the merits and thus is not a bar to the filing of the
new action. (Goddard v. Security Title Ins. & Guar. Co.
(1939) 14 Cal. 2d 47, 52.) “On the other hand, it is generally
held that a demurrer which is sustained for failure of the
facts alleged to establish a cause of action, is a judgment on
the merits. However, this is true only if the same facts are
pleaded in the second action [citation], or if, although
different facts are pleaded, the new complaint contains the
same defects as the former.” (Kanarek v. Bugliosi, supra,
108 Cal.App.3d at p. 334.)
Under the bar rule, a prior judgment based on the
statute of limitations ordinarily is not on the merits. In Mid-
Century Ins. Co. v. Superior Court (2006) 138 Cal. App. 4th
769, 773 (Mid-Century Ins. Co.), the plaintiff sued his
insurer for breach of contract, negligence, bad faith, and
fraud, alleging that the insurer mishandled his insurance
claim relating to damage resulting from the 1994 Northridge
earthquake. After the trial court sustained a demurrer to
the complaint without leave to amend because the applicable
limitations period had run, the Legislature enacted a statute
extending the limitations period for some lawsuits arising
from the Northridge earthquake. (Id. at pp. 773-774.)
11
Relying on that statute, the plaintiff initiated a second
action against the insurer in which he asserted the same
claims. (Ibid.) The insurer requested judgment on the
pleadings, arguing that the doctrine of res judicata barred
the second action. (Ibid.) When the trial court denied that
request, the insurer sought relief by writ. (Ibid.) Affirming
the denial of judgment on the pleadings, the appellate court
concluded that the judgment in the first action on the basis
of the statute of limitations was not “on the merits.” (Id. at
pp. 774, 776-777.)
In Koch v. Rodlin Enterprises (1990) 223 Cal. App. 3d
1591, 1593, 1594-1596 (Koch), the plaintiff initiated a
lawsuit, alleging that the defendants had created and sold
subdivision land in violation of the California Subdivision
Map Act (Gov. Code, §§ 66410-66499.37). When the
defendants sought summary judgment on the claims on the
basis of the applicable statute of limitations, the plaintiff
requested leave to amend the complaint to include a fraud
claim, which he contended was not time-barred. (Koch v.
Rodlin Enterprises at p. 1594.) The trial court granted
summary judgment and denied leave to amend. (Ibid.) The
plaintiff then filed a second action for fraud against the
defendants, who successfully demurred on the ground of res
judicata, and secured a judgment in their favor. (Id. at p.
1595.) Reversing, the appellate court held that
“[t]ermination of an action by a statute of limitations is . . . a
technical or procedural, rather than a substantive,
termination.” (Id. at p. 1596.)
12
Under the bar rule, a judgment due to a demurrer to
potentially curable defects in the complaint’s allegations also
is not on the merits. In Keidatz v. Albany (1952) 39 Cal. 2d
826, 827 (Keidatz), the plaintiffs, after buying a newly-
constructed home, brought an action to rescind the contract
on the basis of fraud. A demurrer was sustained to the
complaint, as the plaintiffs had engaged in undue delay in
seeking rescission, and the complaint lacked allegations
sufficient to state a fraud claim for damages. (Id. at p. 829.)
Although the plaintiffs were granted leave to amend, they
failed to file an amended complaint, and judgment was
entered against them. (Ibid.) They then commenced a
second action, seeking damages rather than rescission. (Id.
at pp. 827-828.) Their complaint asserted a fraud claim for
damages, and contained new allegations necessary for such a
claim but absent from their prior complaint. (Id. at p. 828.)
Relying on the bar rule, the defendant successfully secured
summary judgment. (Id. at p. 829.) Our Supreme Court
reversed, concluding that the newly alleged facts barred the
application of claim preclusion. (Id. at pp. 828-829.)
C. Analysis
Upon sustaining Freeman’s demurrer to the FAC, the
trial court concluded that Boyd’s actions involved the same
primary right, as both actions challenged Freeman’s conduct
in connection with the foreclosure sale, and sought recovery
of the Glendale property. In so ruling, the court observed
that Boyd’s complaints in the first action contained
13
allegations asserting Freeman’s noncompliance with the
nonjudicial foreclosure scheme, which constituted a key
basis for her claims in her second action.
Although we agree that both actions involved one
primary right in common -- namely, the right associated
with the nonjudicial foreclosure scheme-- the judgment in
the first action was not on the merits with respect to that
primary right, and thus did not bar Boyd’s second action.4
In sustaining the demurrer underlying the judgment in the
first action, the trial court ruled primarily that Boyd’s claims
were time-barred, which is not a determination “on the
merits.” (Mid-Century Ins. Co., supra, 138 Cal.App.4th at
p. 774; Koch, supra, 223 Cal.App.3d at pp. 1596-1598.)5
4 In the first action, Boyd’s first amended complaint focused
on Freeman’s alleged misconduct in connection with the 2005
loan, but also referred to potential violations of the nonjudicial
foreclosure scheme. Under the UCL claim, after alleging that
Freeman’s misconduct regarding the 2005 loan contravened the
CLRA, the complaint asserted that his misconduct “resulted in
claims of foreclosure rights not in compliance with California law,
[and] further resulted in a purportedly lawful but in fact void
[t]rustee’s sale . . . .” The UCL claim thus depended in part on
the primary right relating to the nonjudicial foreclosure scheme.
(See Olsen v. Breeze, Inc. (1996) 48 Cal. App. 4th 608, 625-626.)
5 On appeal, Freeman has not suggested that the judgment
in the first action was on the merits, although the ruling on the
demurrer also involved a substantive determination, namely,
that the UCL claim failed insofar as it relied on the CLRA
because the CLRA was inapplicable to Freeman’s loan to Boyd.
(Fn. is continued on the next page.)
14
Freeman invokes a principle he terms “the rule against
splitting a cause of action,” which he maintains is distinct
from the doctrine of res judicata, and requires no prior
judgment on the merits for its application. He argues that
As explained below, we would have rejected any such contention
had it been raised.
The primary right underlying the CLRA-based UCL claim
in the first action differed from the key primary right underlying
the FAC’s claims relating to the nonjudicial foreclosure sale. The
CLRA and the nonjudicial foreclosure scheme regulate different
types of harmful conduct. The purpose of the CLRA is to protect
the consumer from unfair or deceptive practices during the
purchase or lease of goods or services. (America Online, Inc. v.
Superior Court (2001) 90 Cal. App. 4th 1, 11; Civ. Code, §§ 1760,
1770.) In contrast, the nonjudicial foreclosure scheme is intended
to provide creditors a quick and efficient remedy against
defaulting debtors while protecting debtors from a wrongful loss
of property. (Moeller v. Lien (1994) 25 Cal. App. 4th 822, 830.)
Those different purposes are reflected in Boyd’s claims, as the
CLRA-based UCL claim in the first action focused on Freeman’s
alleged misconduct in making the 2005 loan, while the FAC’s
claims focus on the validity of the 2012 foreclosure sale. Thus,
the primary right underlying the CLRA-based UCL claim was
distinct from the key primary right underlying the FAC’s claims.
(Ivanoff, supra, 9 Cal.App.5th at pp. 723-729 [claim that a lender
breached a secured loan agreement involved a primary right
distinct from that underlying claim that the lender, in making
the loan, violated duties under the federal Truth In Lending Act
(15 U.S.C. § 1601 et seq.)]; Sawyer, supra, 124 Cal.App.3d at pp.
396-397, 402 [claim that the defendants breached a loan
agreement by failing to make payments involved a primary right
distinct from claim that the defendants conspired to arrange a
sham foreclosure sale].)
15
the demurrer was properly sustained because the FAC
involved “a single primary right, asserted in two successive
proceedings, in violation of the theory of primary right, and
thus in violation of the rule against the splitting of a cause of
action,” even though the judgment in the first action was not
on the merits. The crux of his contention is that Boyd’s
second action is an impermissible “effort to circumvent
. . . the rulings . . . in the [f]irst [l]awsuit denying her leave
to amend.” We disagree.
Under California law, the rule against splitting a cause
of action is not independent of the doctrine of res judicata.
(Hamilton v. Asbestos Corp. (2000) 22 Cal. 4th 1127, 1146.)
As our Supreme Court has explained, the rule against
splitting a cause of action reflects the application of the
primary right theory, and “is in part a rule of abatement and
in part a rule of res judicata.” (Ibid., italics omitted.)
“‘[W]hen a plaintiff attempts to divide a primary right and
enforce it in two suits,’” the primary right theory prevents
this result in two ways: “‘(1) if the first suit is still pending
when the second is filed, the defendant in the second suit
may plead that fact in abatement . . . ; [and] (2) if the first
suit has terminated in a judgment on the merits adverse to
the plaintiff, the defendant in the second suit may set up
that judgment as a bar under the principles of res judicata
[citation].’”6 (Ibid., italics omitted, quoting Panos v. Great
6 As Witkin explains, when a plea of abatement based on a
pending prior action is established in a second action, the
(Fn. is continued on the next page.)
16
Western Packing Co. (1943) 21 Cal. 2d 636, 638-640). So
understood, the rule against splitting a cause of action
incorporates the bar rule of claim preclusion. For that
reason, the former reflects policy considerations similar to
those underlying the latter, namely, the reduction of
vexatious litigation and the conservation of judicial
resources. (Weikel v. TCW Realty Fund II Holding Co.
(1997) 55 Cal. App. 4th 1234, 1250-1251.)
Boyd’s second action did not contravene the rule
against splitting a cause of action, as the judgment in her
first action was not “on the merits” with respect to the key
primary right underlying her claims in the second action. In
the absence of a judgment on the merits, the bar rule of
claim preclusion did not disallow Boyd’s new claims for
unlawful foreclosure predicated on additional factual
allegations. (Keidatz, supra, 39 Cal.2d at pp. 828-829.) Nor
did the denial of leave to amend in the first action do so. As
our Supreme Court has explained, “[i]f . . . new or additional
facts are alleged that cure the defects in the original
pleading, it is settled that the former judgment is not a bar
to the subsequent action whether or not plaintiff had an
opportunity to amend his complaint.” (Id. at p. 828; see
Sterling v. Galen (1966) 242 Cal. App. 2d 178, 184, fn. 2 [“The
fact that defendants’ general demurrers were sustained
appropriate remedy is the entry of an interlocutory judgment
postponing trial, rather than dismissal of the action. (5 Witkin,
Cal. Procedure (5th ed. 2008) Pleading, § 971, pp. 383-385.)
17
without leave to amend in the first action is not, of course,
determinative of the question of res judicata”].)
Freeman’s reliance on Ricard v. Grobstein, Goldman,
Stevenson, Siegel, LeVine & Mangel (1992) 6 Cal. App. 4th
157 (Ricard) is misplaced, as that decision is founded on
principles not applicable here, notwithstanding its reference
to the policy considerations underlying the rule against
splitting of a cause of action. There, the plaintiffs sued a law
firm, seeking punitive damages. (Ricard, supra, 6
Cal.App.4th at p. 159.) After sustaining demurrers to
portions of the complaint and first amended complaint, the
trial court struck the request for punitive damages without
leave to amend. (Ibid.) The plaintiffs then sought to file a
second amended complaint requesting punitive damages on
the basis of a new claim for conspiracy to commit fraud, but
the trial court denied leave to file it. (Ibid.) While the initial
action was pending and without the filing of a notice of a
related case as required under local rules, the plaintiffs
commenced a second action in a different district of the same
superior court. (Ibid.) The new action was limited to the
identical claim for conspiracy to commit fraud and request
for punitive damages they had unsuccessfully sought to add
to their complaint in the first action. (Ibid.) In the second
action, the law firm demurred on the ground that the
complaint was “another patent attempt to circumvent the . . .
ruling” in the first action. (Ibid.) After the second action
was transferred to the superior court district in which the
first action was pending, the trial court there sustained the
18
demurrer without leave to amend and entered a judgment of
dismissal. (Id. at pp. 159-160.)
The plaintiffs appealed from the judgment in the
second action, contending that the sustaining of the
demurrer on the basis of collateral estoppel -- that is, issue
preclusion -- was improper, as there was no final judgment
on the merits in the first action. (Ricard, supra, 6
Cal.App.4th at pp. 159-160.) The appellate court concluded
that collateral estoppel was not the actual basis for the
ruling, as the trial court had expressly characterized the
ruling in the first action as “‘just an interlocutory order.’”
(Id. at pp. 161, 162.) The appellate court further concluded
that the dismissal of the second action was proper in view of
the trial court’s statutory authority to strike “any pleading
not drawn or filed in conformity with . . . an order of the
court” (Code Civ. Proc., § 436, subd. (b)) and its “inherent
discretionary power” to dismiss sham claims (Lyons v.
Wickhorst (1986) 42 Cal. 3d 911, 915).7 (Ricard, supra, at
p. 162.) The appellate court stated: “With almost
frightening candor appellants acknowledge that the present
suit was filed solely to circumvent the court’s prior adverse
ruling. Consequently, it could properly be struck . . . .”
7 Code of Civil Procedure section 436 provides: “The court
may . . . at any time in its discretion, and upon terms it deems
proper: [¶] (a) Strike out any irrelevant, false, or improper
matter inserted in any pleading. [¶] (b) Strike out all or any part
of any pleading not drawn or filed in conformity with the laws of
this state, a court rule, or an order of the court.”
19
(Ibid.) In so concluding, the appellate court discussed the
theory of primary rights and remarked that the second
action “split [the plaintiffs’] cause of action in violation of the
policy against misuse of court time.” (Ibid.) The appellate
court further observed that the plaintiffs’ appropriate course
of action was to seek review of the adverse ruling in the first
action by appeal or writ proceeding. (Ibid.)
Nothing in Ricard suggests the existence of a doctrine
properly denominated a “rule against splitting a cause of
action” permitting a court to sustain a demurrer in the
absence of a prior judgment on the merits. The holding in
Ricard relied on the trial court’s statutory and inherent
authority to strike complaints that circumvent a prior court
order. Although the appellate court alluded to the rule
against splitting a cause of action, its remark, viewed in
context, conveyed only that a policy consideration underlying
that rule -- rather than the rule itself -- supported the
sustaining of the demurrer in the second action.
Furthermore, the rationale in Ricard is inapplicable
here because Boyd’s second action improperly circumvented
no court order. As explained above, although there was a
final judgment in the first action, it was not on the merits.
In the absence of such a judgment, the bar rule of claim
preclusion did not prevent Boyd from asserting the claims in
the FAC, even though she had been denied leave to amend in
the first action. (Keidatz, supra, 39 Cal.2d at pp. 828-829.)
Furthermore, unlike the plaintiffs in Ricard, Boyd
contravened no court rules in initiating the underlying
20
action; on the contrary, she engaged in conduct ordinarily
regarded as unexceptional.
Friedman v. Stadum (1985) 171 Cal. App. 3d 775, upon
which Freeman also relies, is inapposite, as it contains no
discussion of res judicata or the rule against splitting a
cause of action. There, an attorney and his client brought an
action for defamation against an expert witness they had
previously hired. (Id. at p. 777.) After the expert witness
secured a judgment in his favor in the defamation action --
but before that judgment became final -- the expert witness
commenced a malicious prosecution action against the
attorney and his client. (Id. at pp. 777-778.) The attorney
then successfully demurred to the malicious prosecution
claim on the ground that it was premature, due to a pending
appeal in the defamation action. (Id. at p. 778.) Affirming,
the appellate court concluded that the expert witness could
not demonstrate an element required for a malicious
prosecution claim, namely, “that the underlying proceeding
[had] terminated in his favor.” (Id. at pp. 778, 779.) That
conclusion implicates neither res judicata nor the rule
against splitting a cause of action. In sum, the demurrer to
the FAC was improperly sustained.8
8 Sabek, Inc. v. Englehard Corp. (1998) 65 Cal. App. 4th 992
(Sabek) which Freeman first brought to our attention during oral
argument, is inapplicable, as it involved issue preclusion, which
requires only that the prior judgment adjudicate the target issue
to finality, not that the prior judgment itself be on the merits.
(South Sutter, LLC v. LJ Sutter Partner, L.P. (2011) 193
(Fn. is continued on the next page.)
21
Cal. App. 4th 634, 660-661.) In Sabek, the plaintiff twice
attempted to serve process on the defendant corporation. (Sabek,
supra, 65 Cal.App.4th at p. 995.) In each instance, the trial court
granted the corporation’s motion to quash service of summons for
want of personal jurisdiction over the corporation. When the
plaintiff attempted for a third time to serve process on the
corporation, the trial court summarily granted the defendant’s
motion to quash, concluding that the absence of personal jurisdi-
cation had been established. (Id. at p. 996.) Affirming, the
appellate court held that under the doctrine of issue preclusion,
the rulings on the first two motions -- though not judgments on
the merits of the plaintiff’s underlying claims -- determined to
finality the absence of personal jurisdiction and thus established
a fundamental defect barring the plaintiff’s action. (Id. at
pp. 998-1000.)
Here, in contrast, the judgment in Boyd’s first action
established no such defect foreclosing the FAC’s wrongful
foreclosure claims. That judgment relied on determinations that
her breach of fiduciary duty and UCL claims were time-barred,
and our decision affirming the judgment noted only that she had
failed to show how she could amend her complaint to assert
wrongful foreclosure claims. As Freeman has not attempted to
show that the FAC’s claims facially suffer from the defects
established in the first action, issue preclusion does not bar the
claims.
Katz v. Gerardi (2011) 655 F.3d 1212, also relied on by
Freeman at oral argument, reflects a procedural doctrine
developed and enforced by federal courts. (Id. at pp. 1217-1218.)
Although known as the “claim-splitting doctrine,” it arises from
the power of federal district courts to manage their own dockets,
and is distinct from res judicata. (Id. at p. 1218.) Because
application of the doctrine does not require a prior judgment on
the merits, it permits a federal district court to dismiss a second
action by a plaintiff who asserts claims that could have been
(Fn. is continued on the next page.)
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DISPOSITION
The order of dismissal is reversed, and the matter is
remanded for further proceedings in accordance with this
opinion. Boyd is awarded her costs on appeal.
CERTIFIED FOR PUBLICATION
MANELLA, J.
We concur:
EPSTEIN, P. J. WILLHITE, J.
pleaded in the plaintiff’s first action, even though that action did
not result in a judgment on the merits. (Id. at pp. 1217-1219.)
We decline to apply the federal doctrine, as our research
has disclosed no California state decision recognizing it, and
Freeman has identified no such decision. Generally, California
courts do not apply federal claim-splitting rules that depart from
principles established by our Supreme Court. (Fujifilm
Corporation v. Yang (2014) 223 Cal. App. 4th 326, 333.) While we
recognize the merits of the federal doctrine, the principles set
forth by our Supreme Court in Keidatz over half a century ago
are binding on us. (Auto Equity Sales, Inc. v. Superior Court
(1962) 57 Cal. 2d 450, 455.)
23