Opinion
Civil No. 04cv0024-L(CAB).
March 30, 2006
ORDER DENYING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT [doc. #28]
Defendants Dean Steward Irwin and Ra Medical Systems, Inc. ("defendants") have filed a motion for summary judgment contending that the prior state court case between the parties precludes this action on the basis of res judicata. The matter has been fully briefed and the Court finds this matter suitable for determination on the papers submitted and without oral argument pursuant to Civil Local Rule 7.1(d)(1). For the reasons set forth below, the Court enters the following decision.
Summary Judgment Standard
Federal Rule of Civil Procedure 56 empowers the Court to enter summary judgment on factually unsupported claims or defenses, and thereby "secure the just, speedy and inexpensive determination of every action." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 327 (1986). Summary judgment is appropriate if the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). A fact is material when it affects the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir. 1997).
The party moving for summary judgment bears the initial burden of establishing an absence of a genuine issue of material fact. Celotex, 477 U.S. at 323. Where the party moving for summary judgment does not bear the burden of proof at trial, it may show that no genuine issue of material fact exists by demonstrating that "there is an absence of evidence to support the non-moving party's case." Id. at 325. The moving party is not required to produce evidence showing the absence of genuine issue of material fact, nor is it required to offer evidence negating the moving party's claim. Lujan v. National Wildlife Fed'n, 497 U.S. 871, 885 (1990); United Steelworkers v. Phelps Dodge Corp., 865 F.2d 1539, 1542-43 (9th Cir. 1989). Rather, "the motion may, and should, be granted so long as whatever is before the district court demonstrates that the standard for the entry of judgment, as set forth in Rule 56(c), is satisfied." Lujan, 497 U.S. at 885 ( quoting Celotex, 477 U.S. at 323).
Once the moving party meets the requirements of Rule 56, the burden shifts to the party resisting the motion, who "must set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 256. The non-moving party does not meet this burden by showing "some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The United States Supreme Court has held that the mere existence of a scintilla of evidence in support of the non-moving party's position is not sufficient. Anderson, 477 U.S. at 252. Accordingly, the non-moving party cannot oppose a properly supported summary judgment motion by "rest[ing] on mere allegation or denials of his pleading." Id. at 256. Genuine factual issues must exist that "can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Id. at 250. If the nonmoving party fails to make a sufficient showing of an element of its case, the moving party is entitled to judgment as a matter of law. Celotex, 477 U.S. at 325.
When ruling on a summary judgment motion, the court must examine all the evidence in the light most favorable to the non-moving party. Matsushita, 475 U.S. at 587. The court cannot engage in credibility determinations, weighing of evidence, or drawing of legitimate inferences from the facts; these functions are for the jury. Anderson, 477 U.S. at 255.
Factual and Procedural Background
On April 29, 2003, plaintiff Photomedex filed an action against defendants in the Superior Court for the State of California alleging breach of contract; conversion; intentional interference with contractual relationships; unfair competition; and misappropriation of trade secrets. (Defendants' Exh. 2) Plaintiff also sought a temporary restraining order that the state court denied. Expedited discovery was commenced.
Defendants filed a motion for summary judgment within the time provided by the state court. The day prior to the filing of defendants' dispositive motion, plaintiff filed a motion for leave to file a first amended complaint that would have added two new defendants and the causes of action that are brought in the current federal complaint and premised on unfair competition. On November 6, 2003, the state court denied plaintiff's motion to file a first amended complaint finding that plaintiff waited too long and without explanation before seeking amendment and the delay would prejudice defendants. (Exh. 9).
Thereafter, the state court granted in part defendants' motion for summary judgment with respect to plaintiff's conversation, intentional interference with contract and breach of contract claims, and denied the motion for summary judgment with respect to plaintiff's unfair competition and misappropriation of trade secrets claims finding that plaintiff had raised disputed issues of material fact. (Exh. 10).
Plaintiff had filed a motion to compel defendant Irwin to answer questions posed during his second deposition which was to be heard on January 2, 2004 — the same date the trial was to commence. But on December 31, 2003, plaintiff dismissed the entire state court action without prejudice. On January 6, 2004, plaintiff filed the present federal action asserting Lanham Act violations of unfair advertising — the claims plaintiff sought to add to the state court case by way of its motion to amend that the state court denied as untimely — but omitting the unfair competition and misappropriation of trade secrets claims for which the state court had denied summary judgment for defendants.
As a result of plaintiff's dismissal without prejudice of the complaint, the state court entered what it denominated as a judgment on January 15, 2004. Defendants then sought attorneys' fees and cost which the state court awarded; consequently, an amended judgment was entered on April 27, 2004, reflecting the awarded attorneys' fees and costs. Plaintiff filed a notice of appeal in the state court on June 28, 2004 addressing solely the award of attorneys' fees and costs. Plaintiff did not appeal the denial of its motion to amend the complaint to add the Lanham Act claims of false advertising. Nor did it appeal the grant of defendants' motion for summary adjudication on plaintiff's claims for conversion, intentional interference with contract, and breach of contract. The Fourth District Court of Appeal, Division One, affirmed the trial court's award of fees and costs on February 23, 2005.
Discussion
Defendants seek to have the complaint filed here dismissed on the basis of res judicata. Plaintiff argues that re judicata is not applicable because the state court did not enter a final judgment as to the claims asserted here because of plaintiff's voluntary dismissal without prejudice of the action.
1. Final Judgment on the Merits
Res judicata describes the preclusive effect of a final judgment on the merits. Mycogen Corp. v. Monsanto Co., 28 Cal. 4th 888, 896 (2002). Plaintiff contends that by voluntarily dismissing its state case after the court entered its decision granting in part and denying in part defendants' motion for summary judgment and after denying its motion to amend the complaint, the court erred by entering judgment in the action because the decision was not on the merits and was not final. Further, even if a final judgment on the merits was entered as to some claims because they were adjudicated on the merits, ( i.e., the granting of the motion for summary judgment as to conversion, intentional interference with contract and breach of contract claims), the motion to amend to add the Lanham Act claims was not on the merits and was not a final judgment that can support the preclusive effect of res judicata in a later filed action.
"By voluntarily dismissing the action without prejudice, [plaintiff] lost the ability to challenge the trial court's interim order." Gutkin v. Univ. of Southern Cal., 101 Cal. App. 4th 967, 975 (2002). (emphasis in original)). Here, by voluntarily dismissing the action, plaintiff gave up the right to appeal the denial of its motion to amend the complaint which sought to bring the causes of action asserted in the present federal action and surrendered any right to appeal the state court's order granting summary adjudication in defendants' favor as to plaintiff's claims for conversion, intentional interference with contract and breach of contract claims. Indeed, plaintiff does not argue that it has any right in any venue to challenge the state court's on the merits decision concerning summary adjudication in defendants' favor of plaintiff's conversion, intentional interference with contract and breach of contract claims.
A. On the Merits
An "on the merits" adjudication is one that actually "pass[es] directly on the substance of [a particular] claim" before the court. Semtek Int'l Inc. v. Lockheed Martin Corp., 121 S. Ct. 1021 (2001) (quoting RESTATEMENT (SECOND) OF JUDGMENTS § 19, Comment a, at 161 (1980) ("The prototyp[ical] [judgment on the merits is] one in which the merits of [a party's] claim are in fact adjudicated [for or] against the [party] after trial of the substantive issues.").
Here, the only "on the merits" decisions of the state court were with respect to defendants' motion for summary adjudication. The denial of plaintiff's motion to amend was on a procedural ground: plaintiff had acted dilatorily in seeking to amend the complaint and defendants would be prejudiced by amendment. Accordingly, the decision to deny plaintiff leave to amend the complaint to add the Lanham Act claims was not on the merits.
B. Final Judgment
The United States Supreme Court has explained that a final decision is "one which ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Budinich v. Becton Dickinson Co., 486 U.S. 196, 199 (1988). "The one final judgment rule is based on the theory that piecemeal appeals are oppressive and costly, and that optimal appellate review is achieved by allowing appeals only after the entire action is resolved in the trial court. Ordinarily, there can be only one final judgment in an action and that judgment must dispose of all the causes of action pending between the parties." H.D. Arnaiz, Ltd. v. County of San Joaquin, 96 Cal. App. 4th 1357, 1366 (2002). "[A] voluntary dismissal [does] not have the legal effect of a final judgment, and [does] not serve to expedite an appeal." Gutkin v. Univ. of Southern Cal., 101 Cal. App. 4th 967, 975 (2002).
Plaintiff's dismissal of the state court action was without prejudice. Under California law, a dismissal without prejudice is no bar to plaintiff's filing a new lawsuit on the same claims so long as the statute of limitations has not run. Wells v. Marina City Properties, 29 Cal. 3d 781, 784, 176 Cal. Rptr. 104, 105 (1981). Voluntary dismissal of an action or claims prevents an adjudication in defendant's favor on the merits of any claim not actually adjudicated. A court's summary adjudication of some but not all causes of action asserted by the plaintiff does not affect plaintiff's right to dismiss the remaining claims without prejudice because there is no dispositive ruling as to those claims. Cal-Vada Aircraft, Inc. v. Sup. Ct. (U.S. Fire Ins. Co.) 179 Cal. App. 3d 435, 443-44, 224 Cal. Rptr. 809, 813-14 (1986).
The parties agree that the dismissal without prejudice of plaintiff's unfair competition and misappropriation of trade secrets claims permits plaintiff to file a new complaint alleging those claims. Because a judgment is final "when it terminates the litigation between the parties on the merits of the case and leaves nothing to be done but to enforce by execution what has been determined," Sullivan v. Delta Air Lines, Inc., 15 Cal.4th 288, 304 (1997), the Court must conclude that the state court's orders are not final and cannot serve as res judicata as to the claims asserted in the federal court action. Moreover, even if the Court were to determine that a final judgment on the merits had been entered with respect to defendants' motion for summary judgment on the claims of conversion, intentional interference with contract, and breach of contract, res judicata would not apply as discussed below.
2. Res Judicata
Res judicata describes the preclusive effect of a final judgment on the merits. Res judicata, or claim preclusion, prevents relitigation of the same cause of action in a second suit between the same parties or parties in privity with them. Collateral estoppel, or issue preclusion, precludes relitigation of issues argued and decided in prior proceedings. Under the doctrine of res judicata, if a plaintiff prevails in an action, the cause is merged into the judgment and may not be asserted in a subsequent lawsuit; a judgment for the defendant serves as a bar to further litigation of the same cause of action. Richard B. LeVine, Inc. v. Higashi, 131 Cal.App.4th 566, 573 (2005). Res judicata is applicable if: "(1) the issues decided in the prior adjudication were identical to the issues raised in the present action, (2) the prior proceeding resulted in a final judgment on the merits, and (3) the party against whom the plea is raised was a party or was in privity with a party to the prior adjudication."
The preclusive effect of a state court judgment in a subsequent federal lawsuit generally is determined by the full faith and credit statute, which provides that state judicial proceedings "shall have the same full faith and credit in every court within the United States . . . as they have by law or usage in the courts of such State . . . from which they are taken." 28 U.S.C. § 1738. With this statute, a federal court is directed to refer to the preclusion law of the State in which judgment was rendered. Marrese v. American Academy of Orthopedic Surgeons, 470 U.S. 373, 380, 105 S. Ct. 1327, 1331 (1984), reh'g denied, 471 U.S. 1062, 105 S. Ct. 2127 (1985). The federal courts are not permitted to employ their own rules of res judicata in determining the effect of state judgments. Id. In the present case, the prior dismissal of the state court action without prejudice was entered in a California state court; therefore, the Court looks to California law to determine the elements of res judicata
Under California law, "[a] valid judgment on the merits in favor of a defendant serves as a complete bar to further litigation on the same cause of action." Slater v. Blackwood, 15 Cal. 3d 791, 795, 126 Cal. Rptr. 2225, 226 (1976). California's res judicata doctrine is based upon the "primary right theory." Id. Under this theory, "the violation of one primary right gives rise to a single cause of action." Id.
"[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." Mycogen, 28 Cal. 4th at 904. The most prominent feature of a primary right is that it is indivisible, i.e., "the violation of a primary right gives rise to but a single cause of action." Id. The primary right is simply the "plaintiff's right to be free from the particular injury suffered." Id.; see also Argarwal v. Johnson, 25 Cal. 3d 932, 955 (1979) ("the significant factor is the harm suffered."). Even where there are multiple legal theories upon with recovery might be predicated, one injury gives rise to only one claim of relief. Slater, 15 Cal. 3d at 795. "The primary right must also be distinguished from the remedy sought: The violation of one primary right constitutes a single cause of action, though it may entitle the injured party to many forms of relief, and the relief is not to be confounded with the cause of action, one not being determinative of the other." Mycogen, 28 Cal. 4th at 904.
The primary right theory is at issue when a plaintiff attempts to divide a primary right and enforce it in two suits. Id. The theory prevents this result when 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. Id.
Because the Court will assume for this discussion only that the "on the merits" decision in the state court action with respect to plaintiff's claims for conversion, intentional interference with contractual rights and breach of contract is final, the Court must decide whether the action brought in federal court based on Lanham Act violations of false advertising seeks to vindicate the same primary right as that brought in the state court. In other words, the Court must determine whether the state court would permit plaintiff to bring a new action in state court under these facts.
In the present case, plaintiff seeks relief for defendants' alleged false advertising in violation of the Lanham Act. In the prior state case, plaintiff sought relief for breach of contract, intentional interference with contractual rights, and conversion.
The Court does not review the claims of unfair competition and misappropriation of trade secrets here because the parties agree that the dismissal without prejudice of these claims permits plaintiff to file a new complaint which alleges them.
In Takahashi v. Bd. of Trustees of Livingston, 783 F.2d 848 (9th Cir. 1986), plaintiff, a public school teacher, had a statutory right to be terminated only for good cause. After she was terminated, she filed a mandamus action in state court to compel the school district to set aside the decision. The court of appeals upheld the trial court's finding that cause existed for the plaintiff's dismissal. Plaintiff then filed an action in federal court alleging that she had been terminated because of her sex and ethnic origin in violation of 42 U.S.C. §§ 1981, 1983. The federal court dismissed plaintiff's action on res judicata grounds finding that "the identical primary right — the contractual right to employment — is at stake." Id., 783 F.2d at 851.
In Agarwal, 25 Cal. 3d 932, plaintiff was terminated from his employment without notice. His former employer made negative statements about plaintiff to prospective employers. Plaintiff filed an action in state court alleging defamation, infliction of emotional distress, and interference with business relationships. He also filed a Title VII action alleging race discrimination in federal court. Prior to a final judgment in state court, the federal court determined plaintiff had not met his burden of proving discrimination and judgment in defendants' favor. Defendants then argued in state court that the federal judgment was a res judicata bar to the state action.
Ultimately, the California Supreme Court held that although the federal action was based on the same underlying facts, it did not necessarily follow that the federal judgment was res judicata under the applicable primary rights analysis. The Court found that defamation and intentional infliction of emotional distress do not implicate the same injury suffered by employment discrimination and are available causes of action under state law. Id., 25 Cal. 3d at 955.
Here, the Court finds that the harm suffered by defendants' alleged false advertising does not implicate the type of harm suffered because of contractual violations or conversion. Accordingly, because plaintiff does not seek to adjudicate the same primary right here as in the state action, this action is not barred by res judicata.
Conclusion
A finding of a final judgment on the merits is a required element for applying res judicata to dismiss a second lawsuit. Because a final judgment, as that term is legally construed, was not entered in the state court action, res judicata will not act to prevent the plaintiff from bringing Lanham Act claims in this court or in the state court. Moreover, plaintiff's federal action alleging Lanham Act violations for false advertising is not an attempt to relitigate the same primary right as alleged in the state action.Based on the foregoing, IT IS ORDERED denying defendants' motion for summary judgment. [doc. #28].
IT IS SO ORDERED.