Opinion
G030738.
11-5-2003
ROBERT M. ALLAN etc., Plaintiff and Appellant, v. AMERICAN LENDERS FACILITIES, INC., Defendant and Respondent.
James C. Mitchell, Mitchell & Gilleon and James C. Mitchell, for Plaintiff and Appellant. OMelveny & Myers, Phillip R. Kaplan and Amy J. Longo, for Defendant and Respondent.
Robert M. Allan appeals from a summary judgment entered after the trial court determined his lawsuit against American Lenders Facilities, Inc. (ALFI), was barred by res judicata because it constituted the same cause of action he had alleged against ALFI in prior litigation. Allan contends that res judicata does not apply, because his prior claims against ALFI were in the nature of an interpleader, and did not include any allegations of wrongdoing by ALFI, the alleged stakeholder of funds in dispute. He is wrong on both counts.
An interpleader is an action available only to the stakeholder, not a claimant to a disputed fund. If Allan wished to establish ALFIs obligations in regard to the disputed funds, while preserving a later claim for damages against it, his option was to sue ALFI for pure declaratory relief. But Allan did not pursue such a limited claim in the prior litigation. Instead, whether he subjectively intended to or not, he stated a cause of action against ALFI for breach of contract and conversion, and obtained coercive relief against it in the form of an injunction. Because he was obligated to seek whatever additional relief he was entitled to in that prior litigation, this judgment is affirmed.
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Allan invested money with First Fidelity Acceptance Corporation, an auto financing company, and in connection with the investment, he received a security interest in First Fidelitys receivables as collateral for the loan, enforceable if it defaulted on certain conditions of the investment. The security agreement provided, among other things, that it "binds [First Fidelity] and its respective representatives, successors and assigns."
In 1998, First Fidelity fell into default on the conditions of the investment. Consequently, in April of 1998, Allan sent a letter to both First Fidelity and ALFI, First Fidelitys loan "servicing agent," demanding delivery of the collateral as required by the security agreement. Neither complied.
Shortly thereafter, Allan learned that ALFI, pursuant to the direction of First Fidelity, had transferred certain of the loans to accounts opened by individuals connected to First Fidelity, and had begun disbursing the proceeds of those loans to the individuals.
In July of 1998, Allan filed a lawsuit in Orange County Superior Court against the individual recipients of the loan proceeds, alleging causes of action for declaratory relief and enforcement of security interest. The complaint seeks injunctive relief against all defendants, along with damages "equal to the value of all Collateral taken by defendants." Although the complaint did not initially name ALFI as a defendant, it attached and incorporated by reference the terms of the security agreement which is binding upon First Fidelity and its representatives, and specifically alleged that ALFI is the loan servicing agent of First Fidelity. The complaint also alleged the demand made upon ALFI and its refusal to turn over the proceeds as required by the security agreement. The complaint sought injunctive relief against all defendants, along with damages "equal to the value of all Collateral taken by defendants."
On the day the complaint was filed, Allan also requested issuance of a temporary restraining order prohibiting further disbursal of the disputed loan proceeds. The court granted the requested order, and specifically restrained the individuals "and their agents ALFI, officers, employees and representatives and all persons acting in concert or participating with them" from transferring any of the disputed funds. (Italics added.)
ALFI complied with the restraining order, and a subsequently issued preliminary injunction, by ceasing its disbursement of the loan proceeds and holding them in an account pending resolution of the dispute. On October 2, 1999, Allan added ALFI to the complaint as a Doe defendant "to the extent that [it] is the holder of any funds . . . subject [to] the Preliminary Injunction, and to the extent [it] is necessary to
further relief in this case." The case was later settled and a consent judgment was entered obligating ALFI to transfer possession of the disputed funds in accordance with its terms.
On October 29, 1999, Allan filed an additional lawsuit, naming ALFI, along with First Fidelity, in San Diego Superior Court. That case contained essentially the same allegations as the Orange County action, including allegations that the security agreement with First Fidelity bound both it and its agents, and that he had directly demanded that ALFI relinquish the security in accordance with the security agreement, which it refused to do. Allan obtained a temporary restraining order and preliminary injunction against ALFI in that case as well. That case also terminated in a consent judgment obligating ALFI to disburse the disputed funds in its possession in accordance with the judgment.
Allan then filed this lawsuit, naming only ALFI (along with Does) as defendant, and seeking damages based upon ALFIs alleged wrongful impairment of its security. ALFI moved for summary judgment, arguing that Allans lawsuit was an attempt to split his cause of action against it, and that the action was consequently barred by res judicata. The court agreed and granted the motion.
Allan argues the trial court erred because the prior lawsuits against ALFI were, in effect, interpleader actions, with ALFI in the position of a mere stakeholder of funds whose ownership was in dispute among Allan and his opponents. However, an interpleader is a specific form of action and remedy available only to the stakeholder as plaintiff, allowing it the option of depositing money which is subject to others conflicting claims into the court, and walking away. (Code Civ. Proc., § 386; State Farm Fire & Casualty Co. v. Pietak (2001) 90 Cal.App.4th 600, 603 (Pietak) ["interpleader is a mechanism available to a stakeholder to avoid litigation over a stake to which it claims no interest."].)
That never happened in the prior cases. In fact, contrary to Allans contention, ALFI did not act in a neutral fashion. Instead, when faced with the conflicting claims, it simply continued to distribute the disputed funds to Allans opponents until Allan filed the prior lawsuits and obtained a court order compelling it to cease. According to Allan, while ALFI actually threatened to interplead the disputed funds, it never did.
If the prior cases had been interpleader actions, Allan would have had a credible argument. As explained inPietak, supra , 90 Cal.App.4th 600, 612, an interpleader action was traditionally limited to two issues, i.e.; (1) whether the stakeholder was entitled to avail itself of the interpleader remedy; and (2) which of the claimants was entitled to the interpleaded funds. Any independent claims by a fund claimant against the stakeholder would have to be litigated separately. The Pietak court acknowledged that several Courts of Appeal had allowed the parties to litigate other claims as cross-actions to an interpleader, but noted that in each of the cases, the cross-action had not been challenged. "[B]ecause the remedy is for the benefit of the stakeholder, presumably the stakeholder may waive it. Thus, if a stakeholder does not object to an independent claim raised by a claimant, there is no reason to believe it cannot be considered in the interpleader action. In effect, the stakeholder has chosen to forgo the remedy and to resolve the independent claim in the same action." (Id. at p. 614.)
Thus, under the Pietak analysis, an interpleader action in this case would have addressed only the issue of ownership of the property deposited, and could not have included any independent claims that either claimant might have had against ALFI, unless ALFI agreed to it. However, as explained above, this case was not an interpleader because Allan was not the stakeholder. It is consequently immaterial that such an action, if brought by ALFI, may have allowed Allan to preserve, and later pursue, a claim for damages based upon ALFIs wrongdoing.
Moreover, it is immaterial that Allan may have intended his lawsuits to act as some form of involuntary interpleader, because it is well settled that a cause of action is not defined by the label plaintiff puts on it. Instead, the identity of a cause of action is determined by an examination of the allegations themselves. (Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 94.) In fact, in evaluating what causes of action are stated in a complaint, the factual allegations are the only things that may be considered, while plaintiffs conclusions of law are ignored. (Moore v. Conliffe (1994) 7 Cal.4th 634, 638.)
And an examination of the complaints in the prior cases reveals that, contrary to what Allan contends now, both alleged facts demonstrating that ALFI was not merely a neutral stakeholder. To the contrary, Allan alleged he had an agreement with First Fidelity which obligated both First Fidelity and its agents to relinquish the collateral for Allans investment under certain conditions. He specifically alleged ALFI was an agent of First Fidelity. Although the conditions requiring relinquishment of the collateral allegedly occurred, and Allan made demands of both First Fidelity and ALFI that they comply with the terms of the security agreement, both refused. What those alleged facts demonstrate is that when faced with conflicting claims to the money it was collecting, ALFI simply chose to ignore Allans claim, and continue disbursing his collateral improperly to his opponents.
Thus those complaints alleged wrongdoing against ALFI. In addition to declaratory relief, those pleadings stated causes of action based upon ALFIs own breach of the terms of the security agreement, and its conversion of the disputed funds by continuing to disburse them improperly despite ALFIs demand. In fact, the allegations of the prior cases state the exact elements of what Allan describes as his current claim, i.e., "1) plaintiffs ownership or right to possession of the property at the time of the conversion; 2) defendants wrongful act or disposition of plaintiffs property rights; and 3) damages." While Allan repeatedly emphasizes he had no intention of seeking any damages against ALFI in the earlier lawsuits, his allegations in the prior Orange County action demonstrate otherwise. According to that complaint, "to the extent that Collateral, or the proceeds of such Collateral, have been received by defendants and have been converted, [Allan] is entitled to damages." Moreover, the prayer for relief included claims for damages against "defendants and each of them." Once ALFI became a defendant, those allegations, and the prayer, applied to it as well as the originally named defendants.
In any event, the determination of whether Allans prior lawsuits constituted res judicata does not turn on whether he actually sought damages as a remedy against ALFI in those cases. As explained in Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, Allan is foreclosed from pursuing damages against ALFI in this action if he sought anything other than pure declaratory relief against it in the earlier lawsuits.
In Mycogen Corp. v. Monsanto Co., supra, the plaintiff originally sued defendant for a declaration of rights under a licensing agreement, and for an order obligating defendant to specifically perform the agreement. However, plaintiff sought no damages in that action. After plaintiff prevailed in the initial action, it sued defendant again, this time seeking damages based upon defendants alleged breach of the agreement. Although plaintiff again prevailed in the trial court, the Supreme Court reversed the second judgment, concluding the action was barred by res judicata.
The Mycogen court first addressed the contention that an action for declaratory relief, in which the court was asked only to adjudicate the parties rights, could not bar a later claim for damages based upon the rights adjudicated. The court acknowledged that the declaratory judgment act provided that "no judgment under this chapter shall preclude any party from obtaining additional relief based upon the same facts," (Code Civ. Proc., § 1062) but concluded that provision applied only in cases involving purely declaratory relief. Because the plaintiff had sought coercive relief (in the form of specific performance) in addition to a declaration of its rights under the licensing agreement, the earlier action did not fall entirely within the declaratory judgment act, and was thus not entirely governed by its strictures.
The court then considered whether plaintiffs initial claim for specific performance stated the same cause of action as its subsequent claim for breach of contract damages. Quoting from its earlier decision in Crowley v. Katleman (1994) 8 Cal.4th 666, 681-682, the court explained "`The primary right theory is a theory of code pleading that has long been followed in California. It provides that 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. [Citation.] 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. [Citation.] . . . [¶] `As far as its content is concerned, the primary right is simply the plaintiffs 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: "Even where there are multiple legal theories upon which recovery might be predicated, one injury gives rise to only one claim for relief." [Citation.] The primary right must also be distinguished from the remedy sought: "The violation of one primary right constitutes a single cause of action, thought it may entitle the injured party to many forms of relief, and the relief is not to be confounded with the cause of action, not being determinative of the other." [Citation.]" (Mycogen Corp. v. Monsanto Co., supra, 28 Cal.4th at p. 904.) The court then analyzed the specific wrongdoing alleged by the plaintiff in the two cases, and concluded it was the same. In that regard, the court rejected the contention that defendant had committed separate, sequential breaches of a continuing obligation, because defendants initial refusal to perform the licensing agreement was a single conclusive repudiation, giving rise to only one cause of action. The court also rejected the contention that plaintiffs claim for specific enforcement of the agreement was distinct from its claim for damages incurred due to the delay in performance: "[A] plaintiff requesting both specific performance and delay damages must request both remedies in the initial proceeding." (Id. at p. 906.) "Delay damages must be requested in the initial action for breach of contract, even if they are still speculative at the time of the suit." (Id. at p. 907.)
In this case, as in Mycogen, Allan had only one primary right; i.e., the right to take possession of the collateral he was entitled to under the terms of his security agreement. ALFI interfered with that right when it refused his written demand and continued, despite that demand, to distribute the funds he claimed to others. ALFIs refusal to play the role of neutral stakeholder, and simply hold the funds until Allans ownership claim was resolved, required Allan to take coercive action against it in the earlier lawsuits, forcing it through a court order to preserve the disputed funds. And having been put in the position of stating his claim and seeking that relief against ALFI in the earlier cases, Allan was obligated to claim whatever other relief he felt entitled to in that earlier litigation.
The judgment is affirmed. ALFI is to recover its costs on appeal.
WE CONCUR: OLEARY, J. and FYBEL, J.