Opinion
No. C-00-00616 CRB
July 28, 2000
MEMORANDUM AND ORDER
Now before the Court is the defendants' motion to dismiss plaintiff Patrick McMahon's ("McMahon") complaint for failure to state a claim. McMahon's complaint charges the defendants with breach of fiduciary duties and professional responsibilities, fraud, deceit, negligence and intentional infliction of emotional distress, all stemming from the defendants' alleged concealment of documents in a prior lawsuit in state court. McMahon claims that this caused him to lose that lawsuit at the summary judgment stage.
BACKGROUND
McMahon owns a 63-foot vessel called the "Gallant Knight," which he has berthed at the defendants' marina, Pier 39, since 1978. In 1984, McMahon entered a fifty-year lease with Pier 39's managing agent, Bay Marina Management, Inc. ("BMMI"), for the use of a berth at Pier 39, and at the same time entered a month-to-month lease for a smaller berth. Less than two decades into this fifty-year relationship, the parties have found themselves in court seven different times, and it is the seventh suit ("underlying action") that forms the basis of this, the eighth lawsuit.
McMahon brought the seventh lawsuit for damages his boat sustained in the early morning hours of November 29, 1997, when a piece of driftwood punctured the boat's hull and it took on water. McMahon, acting pro se, filed suit two weeks later in San Francisco Superior Court against BMMI and Pier 39 Limited Partnership, alleging that Pier 39's slow response to his vessel's plight caused it to take on more water and, as a consequence, sustain more damage internally than would have been the case had Pier 39 acted immediately upon discovering the hole in his boat's hull. In his complaint he alleged that Pier 39 security guards discovered and reported that his vessel was in distress at about 2:00 am, but that Pier 39 negligently failed to act to patch the hole and bail the water from his unoccupied boat until at least six hours later. Pier 39 moved for summary judgment, claiming that the terms of McMahon's lease limited Pier 39's liability to acts of "willful misfeasance, gross neglience or fraud," and that McMahon could, at best, demonstrate only negligence. In opposition to Best's summary judgment motion, McMahon submitted his own declaration stating that on the evening of November 30, 1997, he spoke to the security guard who had discovered his boat's condition and learned that the guard had reported the incident at 2:00 am. He also declared that he had requested copies of the log for the security checkpoint directly in front of his boat's berth, but that the defendants had destroyed those logs as part of their normal business routine. Ten days before the oral arguments on the summary judgment motion, McMahon retained an attorney, Larry Shockey, to represent him, but to no avail.
The court granted Pier 39's summary judgment motion, stating only: "With regard to the First Cause of Action for negligence, the Court finds that Plaintiff has presented no evidence regarding Defendants' breach of any standard of care." A month after the court issued its ruling, McMahon, still represented by counsel, moved the court to set aside its judgment. In that motion, he argued that, due to his own ignorance of the legal system, McMahon had not submitted the declarations of two security guards in his opposition to the summary judgment motion. These two guards, he argued, had direct knowledge of the events of November 29, 1997 and of the time his vessel was first reported in distress; he had merely failed to attach their declarations to his opposition because he had felt his own declaration to be sufficient. He attached to that motion the guards' declarations. Without discussion, the court denied his motion and, on August 27, 1997, the trial court issued a final, amended judgment including both its original decision and its decision to deny McMahon's motion to set aside judgment. McMahon appealed, and on June 22, 2000, the California Court of Appeals heard oral arguments on the appeal. On June 28, 2000, the appellate court issued its decision affirming the trial court on all issues.
On February 23, 2000, McMahon filed a complaint in this Court against members of Pier 39 Limited Partnership individually, and against the attorney that had represented Pier 39 in the underlying action: the same defendants as in the underlying action. In this suit, he alleges that the defendants in that action failed to "turn over the reports of the on scene security guards that initially reported the sinking damaged vessel. Defendants were themselves aware or [sic] such reports, and such failure to disclose was likely to mislead plaintiff and cause great prejudice to him in the Summary Judgment proceedings." Complaint ¶ 30. This failure to disclose was, he alleges, a breach of the defendants' fiduciary and professional duties to him, and fraud or, in the alternative, negligence. Moreover, he claims that the defendants' actions constitute intentional infliction of emotional distress.
Without answering, the defendants filed a motion to dismiss for failure to state a claim. They assert that there is no tort in California for withholding discovery, that the principle of res judicata bars McMahon's claims and that, in the alternative, the Court should abstain from asserting jurisdiction during the pendency of the appeal on the underlying case. Prior to oral argument on the motion to dismiss, the defendants also moved the Court to impose sanctions against McMahon for making claims not supported by existing law, and for making claims barred by the principle of res judicata.
The defendants argued in their motion that the Court should abstain, under the doctrine announced in Colorado River Water Conservation District v. United States, 424 U.S. 800,818-819 (1976), from exercising jurisdiction in light of the appeal pending United state court. Since 28 the appellate court has issued its ruling, there is now no compelling reason for the Court to abstain.
In the motion for sanctions, the defendants assert that they forwarded to McMahon, through counsel, a draft "Joint Case Management Statement and Proposed Order" on May 11, 2000, in which they "set forth in detail the authority showing that plaintiff's complaint had no merit." See Motion at 3. That letter also informed McMahon that Best intended to file a motion for sanctions under Rule 11 if he persisted with the litigation. On May 16, 2000, the defendants served McMahon with a "Case Management Statement and Proposed Order," and then two days later with the present motion to dismiss for failure to state a claim, both of which "set forth all the reasons why plaintiffs complaint did not state a cause of action." Finally, on July 3, 2000, the defendants filed their motion for sanctions with the Court.
DISCUSSION
I. Legal Standard
The defendants move the Court to dismiss McMahon's complaint for failure to state a claim. The motion to dismiss for failure to state a claim is viewed with disfavor and is rarely granted. See Gilligan v. Jamco Develop. Corp.. 108 F.3d 246,249 (9th Cir. 1997). The Court must construe the complaint in the light most favorable to the plaintiff. See Parks School of Business. Inc. v. Symington, 51 F.3d 1480,1484 (9th Cir. 1995). A complaint should not be dismissed for failure to state a claim unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief See Id. However, although courts generally assume the facts alleged are true, courts do not "assume the truth of legal conclusions merely because they are cast in the form of factual allegations." Western Mining Council v. Watt, 643 F.2d 618,624 (9th Cir. 1981), cert. denied, 454 U.S. 1031 (1981). Finally, a federal court acquiring jurisdiction under 28 U.S.C. § 1332 applies state substantive law to determine whether the complaint states a cognizable claim for relief See Santana v. Zilog.. Inc., 858 F. Supp. 1373, 1376 (D. Idaho 1995).
The defendants have attached in support of their motion documents of which they request that the Court take judicial notice, pursuant to Federal Rule of Evidence 201. Rule 12(b) provides that, if a party presents matters outside the pleadings along with its motion to dismiss for failure to state a claim, then the motion shall be considered under Rule 56. See Fed.R.Civ.P.12(b). As a general proposition, however, "a court may take judicial notice of facts outside the pleadings without converting the motion into one for summary judement so long as those facts are items in the record of the case or are public record. See Intermedics, Inc. v. Ventritex, Inc., 775 F. Supp. 1258,1261 (N.D. Cal. 1991).
Here, many of the documents the defendants have attached for judicial notice are copies of the parties' briefs and court opinions from prior litigation. The Court can take judicial notice of these documents as part of the record of the underlying case, or as public record, without converting Best's 12(b)(6) motion into a Rule 56 motion. The defendants have also attached Glen Oleon's declaration, which is not part of the record of the underlying case. Accordingly, the Court will not take judicial notice of Oleon's declaration, but will take judicial notice of the briefs and opinions from the underlying action, and will consider the present motion as a motion to dismiss for failure to state a claim under Rule 12(b)(6).
II. Res Judicata
The defendants argue that res judicata applies to and precludes McMahon's present claims. In detennining whether a subsequent claim is precluded by an earlier judgment, the Court applies the law of the court that issued the earlier judgment. See Matsushita Electrical Industrial Co., Ltd. v. Epstein, 516 U.S. 367,374-5 (1996). Under California law:
Whenever a judgment in one action is raised as a bar to a later action under the doctrine of res judicata, the key issue is whether the same cause of action is involved in both suits. California law approaches the issue by focusing on the "primary right" at stake: if two actions involve the same injury to the plaintiff and the same wrong by the defendant then the same primary right is at stake even if in the second suit the plaintiff pleads different theories of recovery, seeks different forms of relief and/or adds new facts supporting recovery.Eichman v. Fotomat Corp., 147 Cal.App.3d 1170,1174 (1983). In Eichman, the plaintiffs' second action included all of the same claims as the first action, and a new claim alleging that the defendant had committed fraud by suppressing evidence in the first action. Id. The court held that, since both suits involved the same injury to the same primary right, the second suit was precluded by the judgment issued in the first. See id. at 1177. The court further held that "[f]raud by a party will not undermine the conclusiveness of a judgment unless the fraud was extrinsic, i.e. it deprived the opposing party of the opportunity to appear and present his case." Id. at 1175. Finally, suppressing evidence does not constitute "extrinsic fraud," and does not warrant overturning an otherwise valid judgment. See id. at 1176; see also Cedars-Sinai, 18 Cal. 4th at 10 (citing Eichman for this proposition).
The defendants characterize McMahon's present suit as an attempt to escape the preclusive effects of the state court judgment by alleging fraud, and relitigate the original issue of damages to his boat. McMahon's present claims, according to the defendants, arise out of the same injury to the same right, and thus should be precluded by the judgment in state court. The defendants cite Eichman in support of their argument, calling it "right on point" Motion to Dismiss at 13.
Contrary to the defendants' assertions however, McMahon's present claims do not arise out of the same injury to the same right as in the underlying action. The injury McMahon alleged in the underlying action was the damage to his boat, while the injury here centers around the separate harm to his chances to litigate the underlying action successfully. Indeed, the two injuries occurred at different times: the injury giving rise to the underlying action took place on November 29, 1997 when the driftwood punctured the boat's hull, while the injury giving rise to the present action took place some time on or about April 30, 1999, when McMahon argued in opposition to the defendants' summary judgment motion. Indeed, McMahon's present suit does not include any of the same claims as the underlying action. Thus, to the extent thatEichman involved a plaintiff refiling in a subsequent action exactly the same claims for the same injury, that case is inapposite to the one at bar.
The defendants' argument is better understood as a request that McMahon be collaterally estopped from litigating in this Court the issue of the defendants' alleged discovery misconduct. The doctrine of collateral estoppel is meant to preclude "a party who had a full and fair opportunity to litigate a particular issue in a prior proceeding from relitigating it in a subsequent proceeding." McCutchen v. City of Montclair, 73 Cal.App.4th 1138, 1144 (1999). A prior court's decision will have preclusive effect on an issue when: (1) the issue is identical to that decided in the former proceeding; (2) the issue was actually litigated and necessarily decided; (3) the doctrine is asserted against a party to the former proceeding; and (4) the prior decision was final and was made on the merits. See id.
Here, all of the elements of collateral estoppel are met. First, the issue underlying McMahon's present suit is identical to an issue he litigated in the state court. The issue, as indicated above, is whether his chances of proceeding to trial in the underlying action were damaged by his inability to support his opposition to summary judgment with the guards' declarations.
Second, the issue was actually litigated and necessarily decided in the state court proceedings. McMahon raised the issue when he moved trial court to set aside its summary judgment decision, and again in his appeal of the trial court's denial of that motion. Moreover, the issue was necessarily decided. The trial court decided that McMahon's failure to present this information was not sufficient grounds to set aside its summary judgment decision, and the appellate court affirmed that decision, adding that "[n]or would the addition of such evidence have altered the result reached by the trial court. . . . [T]his evidence was `superfluous' to his opposition to the motion." See Order, California Court of Appeal, First District, Division Five, in cases A087573 and A088454, at 17 (internal quotations in original). Indeed, the appellate court noted that McMahon had known about the evidence for years prior to losing summary judgment, had cited to this very information in his complaint, and had cited it in his own declaration prepared in opposition to summary judgment.
Third, collateral estoppel is here asserted against a party to the prior proceeding. All of the parties are in fact the same as those in the prior proceeding.
Fourth, and finally, there is a prior, final judgment on the merits: the judgment the appellate court issued on June 28, 2000. Moreover, this judgment was on the merits as the quote above indicates.
McMahon therefore has had a full and fair opportunity to litigate the issue that forms the basis of his present claims: that his chances in the underlying action were hanned by his failure to produce the guards' declarations to support his opposition to summary judgment. The state courts have heard McMahon on this issue and have disagreed with him. He will not be heard now to advance in the guise of fraud a theory he advanced in the guise of neglect and ignorance before; his claims are barred under the doctrine of collateral estoppel.
III. McMahon's Tort Causes of Action
Even if McMahon were not collaterally estopped from proceeding with his claims, the Court would nonetheless be compelled to dismiss his complaint for failure to state a claim because California courts have explicitly refused to countenance torts for litigation-related misconduct including the withholding or spohation of evidence. See Cedars-Sinai Med. Ctr. v. Superior Ct. of L.A. County. 18 Cal.4th 1,8 (1998). In Cedars-Sinai. the trial court allowed the plaintiff in a medical malpractice claim to amend his complaint to add a claim for punitive damages for the defendant hospital's alleged destruction of medical records critical to the plaintiffs case. Id. at 1. The hospital sought a writ of mandamus to compel the trial court to vacate its order granting the plaintiff leave to amend his complaint to add the punitive damages claim. The appellate court denied the hospital's request. See id. The California Supreme Court reversed, and remanded the issue to the appellate court with instructions to issue the writ. See id.
While the destruction of evidence is "a grave affront," it was error to deny the writ, the court held, because "there are . . . existing and effective nontort remedies for this
problem." Id. at 4. Recognizing a tort for litigation-related conduct, the court cautioned, would create "another round of litigation as an antidote for the fevers of litigiousness." Id. at 9 (quoting Rubin v. Green, 4 Cal.4th 1187,1199 (1993)). In addition to potentially endless litigation, torts for litigation-related conduct would result in duplicative litigation and the potential for inconsistent results. See id. at 16. Specifically, the court (in reviewing its own case history) rejected derivative tort claims for intentional and negligent spohation of evidence (whether by first or third parties) and for concealing or withholding of evidence. See id. at 9-10. The court also noted with approval an appellate court decision rejecting the torts of fraud and intentional infliction of emotional distress based on a claim of false testimony. See id. (citing Agnew v. Parks, 172 Cal.App.2d 756,765-6 (1959)). All of these claims, the court noted, could be adequately addressed by sanctions, special instructions to the jury, and criminal penalties. See id. at 12-14.
Here, all of McMahon's claims are based on the defendants' litigation-related conduct in the underlying case. His first claim, "Breech [sic] of Fiduciary and Professional Responsibility, " has as its basis the factual assertion that "At no time during the litigation in the prior case . . . did the defendants . . . provide the reports and discoverable documents relative [sic] to the sinking vessel." His second claim, "Fraud and Deceit," is based on the assertion that the defendants did not "disclose or turn over the reports of the on scene security guards that initially reported the sinking damaged vessel." His third claim, "Fraud and Deceit," alleges that "Upon the demand for discoverable documents the defendants and each of them provided a knowingly deceitful report." His fourth claim, "Negligence," asserts that the defendants "failed to exercise due care to insure all reports of any nature regarding the damage and sinking of the vessel were preserved." McMahon's fifth and final claim, for intentional infliction of emotional distress, is also a derivative tort. The outrageous conduct that forms the basis of his claim is the defendants' conduct related "specifically to the efforts by the plaintiff to obtain information" pertaining to the defendants' knowledge of the sinking of the vessel. His claim for intentional infliction of emotional distress, then, is just as much a derivative tort as are his other four.
Each of these claims alleges a tort based on the defendants' conduct in the underlying litigation. Indeed, in each cause of action, McMahon states as his damage the termination of the underlying case at summary judgment. There can be no doubt, — then, that his claims are exactly the type of derivative tort action that the California Supreme Court explicitly rejected in Cedars-Sinai. Accordingly, even if McMahon were not collaterally estopped from asserting his present claims, his complaint fails on the merits.
IV. Fiduciary Duty
McMahon is also incorrect in asserting that the defendants and their attorney are his fiduciaries. California law is clear: an adversary in a judicial proceeding (including that party's attorney) owes no special duty to the opposing litigant. See Schick v. Bach, 193 Cal.App.3d 1321, 1329 (1987). Whatever characterization may have described the relationship between McMahon and the defendants prior to their numerous lawsuits, they were certainly adversaries at the time the alleged misconduct occurred. Therefore, McMahon's fiduciary duty claim fails for this reason as well.
V. Rule 11 Sanctions
In addition to their motion to dismiss, the defendants have also moved for Rule 11 sanctions against McMahon. Rule 11 provides for the imposition of sanctions when a motion is frivolous, legally unreasonable, or brought for an improper purpose. See Fed.R.Civ.P.11(b); Conn v. Borjorquez, 967 F.2d 1418,1420 (9th Cir. 1992). A motion or claim is frivolous "if it is unreasonable when viewed from the perspective of a `competent attorney admitted to practice before the district court.'" United States v. Stringfellow, 911 F.2d 225, 226 (9th Cir. 1990). In other words, "[w]here it is patently clear that a claim has absolutely no chance of success under the existing precedents, and no reasonable argument can be advanced to extend, modify or reverse the law as it stands, Rule 11 has been violated." Eastway Constr. Corp. v. City of New York, 762 F.2d 243,254 (2d Cir. 1985) (cited in Stringfellow).
Subsection (c)(1)(A) of Rule II sets out the procedure a party must follow before bringing a Rule 11 motion for sanctions before the Court. The subsection provides that:
A motion for sanctions under this rule shall be made separately from other motions or requests and shall describe the specific con duct alleged to violate subdivision %. It shall be served as provided in Rule 5, but shall not be filed with or presented to the court unless within 21 days after service of the motion . . ., the challenged paper, claim, defense, contention, allegation, or denial is not withdrawn or appropnately corrected.
Fed.R.Civ.P.11(c)(1)(A). Moreover, the local rules of court for the Northern District of California provide that, in addition to the requirements listed above, a motion for sanctions must include a certification of compliance with Rule 11(c)(1)(A). See Civil L. R. 11-8(b)(1).
Once a party has properly brought a motion for sanctions before a court, the court must do two things: first, it must decide whether in fact a violation of Rule 11 has occurred, and if it finds that a violation has occurred then it must, second, decide whether to impose sanctions. See Warren v. Guelker, 29 F.3d 1386,1389 (9th Cir. 1994). The question of whether a violation has occurred is a question of law, while the decision whether to impose sanctions (and which to impose) is left to the court's discretion. See id. at 1388 (holding that the former decision is subject to de novo review, while the latter is subject to abuse of discretion review). In its decision whether to impose sanctions, the district court may consider such factors as whether and how much case law the party opposing sanctions has cited in favor of his claims. See Advisory Committee Notes to 1993 Amendments to Rule 11. Further, although a litigant's pro se status does not preclude the imposition of sanctions against him, the Court may take pro se status into consideration in determining whether sanctions are appropriate. See Warren, 29 F.3d at 1390.
A. Defendants' Motion Appears To Be Procedurally Improper
As a preliminary matter, the defendants' motion for sanctions does not appear to comply with the prescriptions of Rule 11(c)(1)(A) or Civil Local Rule 11-8(b). The Rules quite clearly require that the defendants serve a copy of their motion to impose sanctions on McMahon at least 21 days prior to filing the motion with the Court. The rules also require that the defendants certify that their motion for sanctions has been made in compliance with Rule 11(c)(1)(A). Looking only at the face of the motion, the defendants appear to have done neither.
The attached statement of facts makes no mention that the defendants served the motion on McMahon 21 days prior to filing it with the Court. Indeed, the defendants take great care to enumerate the occasions on which they informed McMahon that his claims were without merit and that they would seek sanctions. Each of these instances however, according to the defendants' own statement, involved only a letter or a "Joint Case Management Statement and Proposed Order." They cite no occasion on which they served McMahon with the present motion, in the maimer prescribed in Rule 5. Moreover, the defendants fail to certify in their motion that they have complied with Rule 11(c)(1)(A). Instead, they make only cursory statements to the effect that "[i]f the Court is reading this, it means that plaintiff did not avail himself of the "safety valve' built into Rule 11 motions by withdrawing his complaint, even under the threat of sanction." Thus, if the facts as presented in the motion are an accurate reflection of this motion's history, then it is not properly before the Court at this time and the Court must reject the motion.
B. Defendants' Arguments On The Merits Fail To Show Sanctionable Conduct
Even if the motion were procedurally proper, the Court cannot grant it. The defendants make two arguments that McMahon has violated Rule 11, both of which fail. First, they argue that McMahon's complaint had no chance of success under existing law, and second, that McMahon knew his present suit was barred by the principle of res judicata.
The defendants' second argument, which constitutes the bulk of the motion for sanctions, is that McMahon persisted in a claim he knew to be barred by the principles of res judicata. As discussed above however, McMahon's present suit is not precluded by res judicata and the defendants' argument to the contrary is misplaced. Moreover, at the time McMahon filed the present suit, his appeal of the underlying action was still pending, so even the issue of collateral estoppel was not clear. The defendants' argument therefore, that McMahon's conduct is sanctionable because he proceeded with a precluded claim, is misplaced.
The defendants also argue that McMahon's complaint had no chance of success under existing law. In support of this contention, they point toCedars-Sinai and other California cases holding that derivative torts for litigation misconduct are not allowed under California law. The defendants' argument then is that, since they informed McMahon on numerous occasions about the present state of California law with regard to derivative torts, his choice to proceed with his claim regardless reflects an improper purpose. This argument however, mischaracterizes the legal theory that McMahon has advanced. In his complaint and opposition to the defendants' motion to dismiss, McMahon argued that the defendants had breached a fiduciary duty to him, and breach of fiduciary duty is a cognizable tort in California. See Wolf v. Mitchell. Silberberg Knupp. 76 Cal.App.4th 1030, 1038-9 (2000). In support of his argument, he cites Black's Law Dictionary and several different cases, including one which, after a long discussion, suggests that the law surrounding fiduciary responsibility is far from settled. See Opposition at 8 (citingMartinelli v. Bridge port Roman Catholic Diocesan, 10 F. Supp.2d 138, 149-154 (D. Conn. 1998)). Though the case is not binding authority on this Court, and though the Court ultimately finds that the defendants owed McMahon no duties as fiduciaries, his argument cannot be described as frivolous or patently unreasonable.
The Court is, therefore, not persuaded that McMahon has violated Rule 11. In any case, considering McMahon's pro se status and the effort he has made to support his contentions, the Court would be disinclined to grant sanctions against him.
CONCLUSION
For the foregoing reasons, the Court GRANTS the defendants' motion to dismiss McMahon's complaint. The Court DENIES the motion for sanctions however, because the motion is not properly before the Court and the defendants have not demonstrated that McMahon's actions constituted a violation of Rule 11.